In U.S. District Court in Manhattan on Monday, Judge Katherine Polk Failla issued New York’s mayor Bill De Blasio a notable defeat of a law intended to regulate the community-mindedness of the many financial institutions that inhabit the city. New York’s city council passed the Responsible Banking Act (RBA) in 2012, requiring banks in the city that hold more than $6 billion to document how well they serve poorer communities, including preparing detailed reports on mortgage modifications or foreclosures, what kind of affordable housing has been funded by the bank, as well as efforts to help struggling small businesses. The mayor at the time, Michael Bloomberg, issued a veto of the measure. The council, however, was able to override the veto even though Bloomberg refused to enforce the law. Current Mayor De Blasio on the other hand began implementing the law earlier this year, causing the New York Bankers Association (NYBA), a group representing over 150 New York banks, including JP Morgan Chase, Citigroup, Goldman Sachs, and Bank of America, among many others to file the federal lawsuit in May.
Judge Failla ruled in favor of the association on Monday and called the RBA “void in its entirety,” believing that the law infringed upon state and federal regulatory authority. In the 71-page ruling, Failla wrote “A review of the extensive record in this case confirms that while the animating concerns of the City Council are valid, the means by which it sought to harness banks to redress those concerns intrudes on the province of the federal and state governments.” The ruling is a major blow to De Blasio, who was attempting to turn the obscure New York City Banking Commission, and a city-hall controlled eight-member panel created by the RBA, into powerful regulatory forces. The language of the RBA gave the Commission the ability to remove any public monies from banks that did not follow the stringent, community-oriented guidelines. The NYBA filed the lawsuit once the commission began sending inquiries requesting information involving provisions of the RBA.
De Blasio and the city have 30 days to appeal the decision, and city hall is considering its options. New York City’s Law Department spokesperson Nick Paolucci responded to the ruling saying, “We are disappointed in the decision. The city has a vital role in understanding the effect banks are having on the economic health of our neighborhoods.” Judge Failla also denied a last minute plea from the city to water-down the legislation, removing the tougher provisions of the law, thus making it “toothless.” Failla believed that “A review of the legislative history makes clear that the City Council would not have passed a version of this bill that omitted these provisions.”The Association for Neighborhood and Housing Development, a group representing New York’s affordable housing communities, said that they were “profoundly disappointed” with the ruling. NYBA attorney Robert Giuffra said that the case and the ruling could have a precedent-setting impact for legal challenges to similar laws in other cities like Los Angeles, Philadelphia, Boston, and Seattle, among others.
Sources:
Crain’s New York Business (blog) – Aaron Elstein
Reuters – Joseph Ax
New York Post – Kevin Dugan
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