A federal judge in New York has made it even more difficult for activists to use the Community Reinvestment Act to challenge bank mergers in court.
U.S. District Judge Lawrence M. McKenna set a tough standard when he ruled last week that activists must prove that a bank discriminated against minority borrowers before a merger and is likely to continue discriminating after the merger.
The judge added that community groups must be able to link the discrimination to the government's failure to adequately enforce the Community Reinvestment Act.
Finally, he said activists must prove that the court could end the discrimination by ordering the government to better enforce the law.
Judge McKenna's decision establishes an "absurd" standard," according to Matthew Lee, the executive director of the Bronx, N.Y.-based Inner City Press/Community on the Move, which brought the suit.
"This is not a standard that is applied in other areas of the law," he said. "How can you show that a future application is going to be denied?"
But industry lawyer Warren Traiger hailed the ruling.
"This sets up even more roadblocks to getting into court to challenge CRA assessments," said the New York-based lawyer. "This will shore up the regulators. They will be less willing to bend over backward to protests."
Paul A. Smith, senior federal counsel at the American Bankers Association, said CRA protests will still delay mergers. "The agencies take these things very seriously, almost no matter what the protest says," he said.
The suit involved CRA protests by Inner City Press against Chase Manhattan Bank, United States Trust Co. of New York, and Greenpoint Bank. The group charged that the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency failed to adequately consider whether deals by these banks affected the "convenience and needs" of their communities.
The U.S. Court of Appeals for the Second Circuit rejected a similar suit against the Federal Reserve Board in July.
Mr. Lee, the community activist, said he plans to pursue similar cases in other circuits. For instance, he has a challenge against BancOne Corp.'s acquisition of First U.S.A. pending in the U.S. Court of Appeals for the District of Columbia.