Judge Blocks Biden Administration’s Attempt to Expand Lending Rules

The federal government’s attempt to expand fair lending rules has been blocked for many institutions.

The new rules, which had been due to take effect on April 1, are based on incorrect interpretations of federal law, U.S. District Judge Matthew Kacsmaryk ruled on March 29.

Current rules, for instance, based on the Community Reinvestment Act (CRA), require banks and other lenders to provide services to low- and moderate-income people in the local community. The expanded rules stretch the definition of community to any individuals with whom the lenders do business.

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Government officials alleged that the word “entire” before community in the law necessitated a fresh examination of the statute and prompted the new rules.

“True, ’the word ‘entire’ … should not be read out of [the statute],” Judge Kacsmaryk wrote in his ruling. “But it does not have the effect defendants attribute to it. In modifying ‘community,’ the word ‘entire’ merely clarifies that the whole community must be served, it does not change what a ‘community’ is. If a statutory ‘community’ is created around every individual customer with whom a bank does business—regardless of whether that customer is within the geography of the bank’s physical presence—the term becomes meaningless and the statute ineffectual.”

The judge, an appointee of former President Donald Trump, also said the section of the new rules that authorize federal banking agencies (FBAs) to assess deposits, instead of only credit activities, was based on an incorrect reading of the law.

He pointed to how the law says the agencies shall “assess the institution’s record of meeting the credit needs of its entire community, including low- and moderate-income neighborhoods” by taking into account “capital investment, loan participation, and other ventures undertaken by the institution” provided that these activities “help meet the credit needs of local communities.”

“Not a single foregoing provision—nor any other CRA provision—authorizes the FBAs to assess deposit products,” he added.

The preliminary injunction blocks the rules for many groups, including the U.S. Chamber of Commerce, which sued over them. The groups said the rules should be blocked as illegal.