NYC's RBA Upheld

Breaking News:  NYC’s Responsible Banking Act upheld:   

The verdict is in! On Tuesday, September 9^th, the US District Court upheld New York City’s Responsible Banking Act (RBA), allowing this important law to move forward. Over $150 billion of New York City’s money flows to and through banks that hold roughly $6 billion in deposits at any given time. The RBA lets the city use the power of that money to hold banks accountable to better meet the needs of our local communities. This RBA gives us a powerful tool to hold banks accountable for their actions and reward good behavior.

ANHD members and allies worked tirelessly with the New York City Council over a two year period to pass the RBA in 2012. In October 2013, 15 months after the law was passed, the New York Bankers Association (NYBA) sued the City Council over the law that they claim will cause them “irreparable harm” due to the potential foradditional costs of compliance, inconsistent requirements with state and federal laws, disbarment from holding City deposits, and reputational harm.

On September 19th, US District Judge Katherine Polk Failla heard oral arguments from lawyers for the Bankers Association (The Plaintiff) and the City Council and the Mayor (The Defendents) to help her make a decision. Judge Failla dismissed the case and upheld the law saying that the Bankers Association failed to demonstrate that any of these harms had happened or were likely to happen soon at the time the case was filed.

As explained in a previous  ANHD blog, the court’s resolution of the case rested on three overarching principles, known in legalese as “Standing,” “Ripeness” and “Preemption”.  Standing and Ripeness have to do with whether the banks can even make these claims of harm this time, or if it is too early to demonstrate any harm since the bill has not yet been implemented. In this case, the judge ruled that the banks did not havestanding at the time the case was filed,meaning they could not prove any harm has resulted, or will result, from the law.

Judge Failla ultimately concluded that “…all that Plaintiff had in October 2013 was a free-floating malaise that, one day in the future, a new mayoral administration might implement LL 38 [the RBA]; this cannot suffice to constitute standing …”

Preemption is related to the powers of government to regulate banks.  The State and Federal government have multiple regulatory powers over banks, such as in the Community Reinvestment Act.  If the judge had decided that the law does indeed make the city another regulator – thereby potentially causing the banks the harm described above – the law could have been struck down as “preempted” by the State and Federal laws, which the City is not allowed to replicate.  This key issue comes down to whether the city is acting as a regulator or as a participant in the market. If the city is acting as a market participant, then the issue is what goals it can take into account when choosing where it can put its money, including banks’ records of meeting the credit needs of lower-income neighborhoods.

Judge Failla did not rule on the issue of preemption because she determined the Bankers Association had not sufficiently proven that their members have or will suffer harm to be allowed to file the lawsuit in the first place. Therefore, we know that the Bankers Association will not stop and is likely to refile the case in the future. We urge them to wait and give the law a chance. The RBA in fact does not mandate that the banks do anything, but it gives them the opportunity to hold themselves to a higher standard of accountability and transparency.

Ultimately, the power of this bill comes not from any new regulatory powers by the City, but rather from the people. If all the RBA did was to gather and publish data and issue reports, nothing would happen.  The power comes from people participating in the process to ensure that the banking commission and the City at large have information that truly reflects the vast experiences of our diverse neighborhoods and people, including banking needs and how banks are responding.

The RBA is a reasonable, commonsense, tool to increase transparency and hold banks accountable to the local needs of our community. As we learned in the oral arguments, the city expects to be ready to implement the RBA by November with a fully constituted Community Investment Advisory Board, two new staff to support them, and a contractor to oversee the process of data collection and reporting.  With the lawsuit behind them, ANHD urges the Mayor to implement the RBA without delay!

(Stay tuned for great community materials from ANHD and CUP – coming soon!)