A California federal district court has denied the OCC’s motion to dismiss the lawsuit filed in June 2020 by the National Community Reinvestment Coalition and California Reinvestment Coalition that asks the court to declare the OCC’s CRA final rule (Rule) unlawful under the Administrative Procedure Act (APA) and set it aside.

In its order denying the OCC’s motion to dismiss, the court rejected the OCC’s argument that the plaintiffs lack standing because they have not shown that they have suffered an injury in fact.  The plaintiffs allege that the Rule’s expansion of CRA-qualifying activities will lead to divestment from the low- and moderate-income (LMI) communities that the CRA was enacted to protect by allowing banks to receive CRA credit for projects and activities with, at best, attenuated and speculative benefits to LMI communities and that will instead benefit upper-income individuals.  According to the plaintiffs, the Rule will force them and their members to compete with these projects and activities when seeking funding for CRA activities from OCC-supervised banks.

The court found that these allegations were sufficient to allege an injury in fact under the “competitor standing doctrine” which requires a showing that an agency action will result in an increase in competition but does not require an actual loss in business opportunities to be shown.  According to the court, it was “enough [for the plaintiffs] to allege that [their community] activities will now have to compete with investment opportunities that could not previously receive CRA credit.”

The court also rejected the OCC’s argument that the plaintiffs’ claims are not ripe.  According to the OCC, the basis for the plaintiff’s alleged injuries assertions–that banks will perform fewer or less valuable CRA activities—was speculative because the OCC has not yet finalized the thresholds and benchmarks that will apply under the Rule to evaluate a bank’s CRA performance. The court found this argument unpersuasive, agreeing with the plaintiffs that the pending rulemaking would at most affect the amount of harm caused by the Rule but would not eliminate harm altogether.  (The OCC issued a proposed rule in November 2020 on the evaluation measure benchmarks and thresholds.  The comment period on the proposal closed on February 2, 2021.)

Also rejected by the court was the OCC’s argument that the plaintiffs do not have prudential standing because their claims of potential harm from the Rule fall outside of the CRA’s zone of interests.  In the court’s view, plaintiffs and their members interests satisfied the “zone of interests test” because they receive grants and loans for which banks receive CRA credit, making them direct beneficiaries of the CRA.

Finally, the court denied the OCC’s attempt to dismiss the first count of the complaint for failure to state a claim under the APA.  The first count alleges that the Rule should be set aside because it is “arbitrary, capricious, and/or contrary to law.”  The court stated that it did not have the benefit of the administrative record and because the OCC’s argument went “directly to the merits of the case,” the argument was more appropriately addressed on summary judgment.  The court declined to convert the OCC’s motion to dismiss into a summary judgment motion.

As we previously observed, the Rule’s fate under the Biden Administration is unclear.  There is the real possibility that the new Comptroller of the Currency could seek to amend the Rule to address some of the concerns raised in the litigation and by critics.  It is also possible that the incoming Comptroller could potentially take the drastic step of withdrawing the Rule to try to again achieve interagency consensus with the FDIC and the Federal Reserve on a uniform CRA rule.