The American Bankers Association, US Chamber of Commerce and five national and state associations have sued federal regulators over amendments to the Community Reinvestment Act (CRA).

The trade associations filed a lawsuit against the Federal Reserve, FDIC and OCC for exceeding their statutory authority and acting arbitrarily and capriciously when imposing new rules for the CRA.

The CRA requires federal banking regulators to encourage banks to meet the credit needs of the communities that they operate in, including low- and moderate-income neighbourhoods.

The amendments to the act include the introduction of a metrics-based approach that will be used to evaluate bank retail lending and community development financing.

The new rules will also update the CRA regulations to evaluate lending outside traditional assessment areas generated by the growth of non-branch delivery systems.

This enables agencies to establish a framework to evaluate the digital delivery of banking products and services, such as online and mobile banking, branchless and hybrid models.

However, the trade associations have claimed the new rules unlawfully exceed congressional authority as regulators will evaluate bank lending well beyond banks’ deposit-taking footprint.

They said the rule to evaluate some institutions’ records of providing deposit products and services violates the law as the CRA only authorizes regulators to assess a bank’s record of meeting the credit needs of its local communities.

In a statement, Rob Nichols, president and CEO of American Bankers Association, said: “Even more troubling, the Final Rules risk undermining the very goals of CRA by creating disincentives for banks to offer certain products or lend in geographies outside of their branch network.”

He added the trade associations were left with no choice but to file the lawsuit because federal regulators have failed to respond to public comments and fix flaws in their rulemaking.

The lawsuit asks the court to remove the amendments to the CRA and implement a preliminary injunction which pauses the new rules while the court decides the merits of the case.

Most of new rules’ requirements will be applicable from January 1, 2026, and the remaining requirements, including data reporting requirements, will be applicable from January 1, 2027.