Anti-redlining regulations adopted during the Biden administration are on hold as banking groups argue in a pending lawsuit that banking regulators have far exceeded the powers granted to them by Congress in 1977. 

The lawsuit claims that banking regulators overstepped their authority when issuing rules aimed at expanding the Community Reinvestment Act to cover internet and mobile banking and expanding services to low-income communities. 

Banking industry leaders say the new regulations would have “unintended consequences and fail to consider the long-term impact on the very communities they seek to protect” and noted the “new and unnecessarily complex evaluation could result in banks being forced to close branches.” 

Banking trade groups, including the American Bankers Association and the U.S. Chamber of Commerce, filed a lawsuit in February against federal regulators including the Federal Reserve, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency.

The banks said they supported the Community Reinvestment Act, passed by Congress in 1977 to encourage banks to expand lending to low-income and inner-city neighborhoods and reverse the discriminatory practice of “redlining,” which is denying financial services to areas based on race or income. However, the new rules go beyond that congressional statute and fail to recognize what banks have already done to lend to low-income areas, the industry leaders argue.

In late March, a federal district judge, appointed by President Trump, Matthew Kacsmaryk, sided with the banking groups, blocking the regulations from going into effect for the duration of the lawsuit. 

The legal challenges are reviving debate about what some critics see as the unintended consequences of rules, however well-intentioned, against redlining. The topic garnered headlines in 2020, when then-presidential candidate and three-term mayor of New York City, Michael Bloomberg, faced criticism for resurfaced comments from 2008 in which he connected the financial crisis to anti-redlining efforts.

“It probably all started back when there was a lot of pressure on banks to make loans to everyone,” Mr. Bloomberg said in 2008 during a lecture at Georgetown University, the Associated Press reported. “Redlining, if you remember, was the term where banks took whole neighborhoods and said, ‘People in these neighborhoods are poor, they’re not going to be able to pay off their mortgages, tell your salesmen don’t go into those areas.’”

Mr. Bloomberg then noted that Congress interfered and said that the practice wasn’t fair. “And once you started pushing in that direction, banks started making more and more loans where the credit of the person buying the house wasn’t as good as you would like,” he said. 

Mr. Bloomberg faced sharp criticism when the comments resurfaced, and the Bloomberg campaign defended his comments as an attack on “predatory lending.”

The topic of redlining has been a focus of President Biden’s Justice Department, which in 2021 announced a task force to combat “modern-day redlining.”

“Since 2021, the department has announced 12 redlining resolutions and secured over $122 million in relief for communities of color that have been the victims of lending discrimination across the country,” the Justice Department said in a February statement. 

A representative of the department confirmed to the Sun that the $122 million is the most recent number, but declined to comment on what is on the horizon to combat redlining. 

The Justice Department has previously said that “increased and sustained scrutiny of redlining across the federal government” can be expected. “We are proud of the work we have been able to accomplish in these past two years through the Combating Redlining Initiative,” Assistant Attorney General Kristen Clarke said in November. “But we are by no means done.”