       Authority of the Federal Financial Supervisory Agencies
              Under the Community Reinvestment Act


The federal financial supervisory agencies lack authority under the C om m unity R einvestm ent Act o f
   1977 to provide by regulation that financial institutions that do not m eet the credit needs o f their
   com m unities m ay be subject to adm inistrative enforcem ent actions under 12 U S.C. § 1818.


                                                                                                  D ecem ber 15, 1994


                M e m o r a n d u m O p in io n f o r t h e C o m p t r o l l e r o f t h e C u r r e n c y


   This memorandum responds to your request for our opinion concerning whether
the federal financial supervisory agencies (“the agencies”)1 have authority under
the Community Reinvestment Act of 1977 (“CRA ”), 12 U.S.C. §§ 2901-2907, to
provide by regulation that financial institutions that do not meet the credit needs of
their communities may be subject to administrative enforcement actions under 12
U.S.C. § 1818. W e conclude that the agencies lack such authority.2

                                                            I.

    The purpose of the CRA is “to require each appropriate Federal financial super­
visory agency to use its authority when exam ining financial institutions, to encour­
age such institutions to help meet the credit needs of the local com m unities in
which they are chartered consistent with the safe and sound operation of such in­
stitutions.” 12 U.S.C. § 2901(b). To further this end, the CRA requires the agen­
cies to assess an “institution’s record of meeting the credit needs of its entire
com m unity,” 12 U.S.C. § 2903(a)(1), and to “take such record into account in its
evaluation of an application for a deposit facility by such institution.” 12 U.S.C.
§ 2903(a)(2). “[A pplication for a deposit facility” is defined to include applica­
tions for approval to open a branch, to relocate a main or branch office, or to
merge with or acquire another institution. 12 U.S.C. § 2902(3). The agencies
must prepare a written evaluation of each institution’s performance under the CRA,
assign a rating to that performance, and disclose that rating to the public. 12
U.S.C. § 2906. The CRA also authorizes the agencies to promulgate regulations to
carry out the purposes of the Act. 12 U.S.C. § 2905.

    1 T he federal financial supervisory agencies are the O ffice o f the C om ptroller o f the C urrency, the Federal
R eserve System , the Federal Deposir Insurance C orporation, and the O ffice o f T hrift S upervision
   2 T he O ffice o f T h rift Supervision (“O T S”) has suggested in a letter to this O ffice that it has sufficient
authority u n d er the H om e O w n ers' Loan Act (“H O L A ”), 12 U S.C. §§ 1461-1468, to enable it lo prom ulgate
and enforce a requirem ent that regulated in stitutions help m eet the credit needs of their com m unities. W e
express no opinion on the authority o f OTS or the other agencies under H O LA or any other statute besides
the C R A

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    The agencies have proposed substantial revisions to their regulations im ple­
m enting the CRA. S ee Community Reinvestment Act Regulations, 58 Fed. Reg.
67,466-67,508 (1993). The proposed regulations provide that financial institutions
“have a continuing and affirmative obligation to help m eet the credit needs o f their
comm unities, including low- and m oderate-incom e areas, consistent with safe and
sound operations.” S ee id. at 67,479 (§ 25.2). The proposed regulations state that
an institution rated by an agency to be in “Substantial N oncom pliance” with that
obligation shall be subject to enforcement actions under 12 U.S.C. § 1818, which
authorizes the agencies to issue cease-and-desist orders and levy civil monetary
penalties. See id. at 67,480 (§ 25.6(b)). The potential monetary penalties the in­
stitutions would face range from not more than $5,000 a day for each day during
which a “first tier” violation continues to a m aximum daily penalty of $1,000,000
or one percent o f the institution’s total assets, whichever is lower, for a “third tier”
violation. S ee 12 U .S.C. § 1818(i)(2).
    As discussed below, we do not believe that the agencies are authorized to bring
actions under 12 U.S.C. § 1818 to enforce the CRA. O ur conclusion is based on
the clearly expressed intent of C ongress in enacting the CRA,3 and rests on two
independent rationales: (1) the CRA application evaluation procedure is the exclu­
sive enforcem ent m echanism authorized by Congress; and (2) enforcem ent under
12 U .S.C. § 1818 is unavailable because the CRA does not impose an obligation
that could provide the basis for a § 1818 action or authorize the agencies to impose
such an obligation.

                                                           II.

   W e believe that Congress has plainly spoken on the question o f what enforce­
m ent tools are available to the agencies under the CRA. The CRA provides for
enforcem ent only in the application context, requiring that the agencies shall take
an institution’s record of meeting the credit needs of its community into account
when evaluating that institution’s application for a deposit facility. Congress speci­
fied only this one enforcem ent mechanism in the CRA, and we do not believe it is
perm issible for the agencies to em ploy other enforcem ent mechanisms, on the
authority o f the CRA, in the absence o f some basis in the text of the statute. Agen­
cies m ay act only pursuant to delegations of power that are explicit or can fairly be


    3      T h is is th e re fo re not a situ a tio n where C h ev ro n d eferen ce may be relied upon to support an agency
in terpretatio n . In C h evro n U S A . In c v N a tio n a l R eso u rces D efense C ouncil, I n c , 467 U S 837 (1984),
the S u p rem e C o u rt an n o u n ced a tw o-step rule f o r courts to follow w hen review ing an ag en c y ’s construction
o f a s tatu te th at it ad m in isters. T h e court m ust alw ay s first exam ine “w hether C ongress has directly spoken
to the p recise q u e stio n at issue. If th e intent o f C ongress is clear, that is the end o f the m atter; for the court,
as well as the ag en cy , m ust g iv e effect to the u n am b ig u o u sly expressed intent o f C ongress ” Id a t 842-43.
If, how ev er, “ the statu te is sile n t o r ambiguous w ith respect to the specific issue, the question for the court is
w hether th e a g e n c y ’s an sw er is based on a p erm issib le co n stru ctio n o f the statute * Id. at 843 As discussed
in the tex t, w e d o not believe th a t th e CRA is s ile n t or am b ig u o u s w ith resp ect to the authority being vested
in the agencies. A cco rd in g ly , there is no basis fo r deferring to an agency interpretation

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implied from the statutory scheme. See R ailw ay L abor E xecu tives’ A s s ’n v. N a­
tional M ediation Bd., 29 F.3d 655, 670-71 (D.C. Cir. 1994) (en banc), cert, d e ­
nied, 514 U.S. 1032(1995).
    The CRA contains no express directive for the agencies to use any other modes
of enforcement, much less such coercive enforcem ent as cease-and-desist orders
and monetary penalties, and there is no basis for inferring such authority from any
provision in the statute. The statute’s only general grant of authority to the agen­
cies is the authority to promulgate im plem enting regulations. We reject the argu­
ment that a delegation of broad enforcement authority can be inferred from the
statute’s delegation of authority to issue implementing regulations and the fact that
the CRA does not explicitly state that the agencies may only sanction financial in­
stitutions through the application process. First of all, the authority to issue regu­
lations is limited to “carry[ing] out the purposes” of the CRA, 12 U.S.C. § 2905,
and those purposes are limited to requiring the agencies to “use [their] authority
when exam ining fin an cial institutions, to encourage such institutions to help meet
the credit needs” of their communities, 12 U.S.C. § 2901(b) (emphasis added).
More fundamentally, as the D.C. Circuit wrote recently, “ [w]ere courts to presum e
a delegation of power absent an express w ithholding o f such power, agencies
would enjoy virtually limitless hegemony, a result plainly out of keeping with
Chevron and quite likely with the Constitution as well.” Railw ay L abor Execu­
tives' A s s ’n, 29 F.3d at 671.
    The legislative history o f the CRA firmly supports our conclusion that the CRA
does not authorize the agencies to employ other methods of enforcement. Neither
the House Conference Report nor the Senate Report makes any mention of a
method of sanction other than through the application process,4 and when intro­
ducing the bill on the Senate floor, Senator Proxmire stated that “[t]he require­
ments in the bill apply only to applications otherwise required under existing law
or regulations and do not provide any new authority to the bank regulatory agen­
cies.” 123 Cong. Rec. 1958 (1977). Similarly, during the floor debate on whether
to delete the CRA provisions from the Housing and Community Development Act,
Senator Lugar stated that “[t]he sanctions that are finally offered, even if some in­
stitution is found guilty in the process, are apparently that the institution would
have some difficulty extending its facilities, no more and no less than that.” Id. at
 17,633.
    More specifically, it would be inconsistent with the views expressed by Senator
Proxmire for the agencies to rely on the CRA for authority to issue cease-and-
desist orders or impose monetary penalties. Speaking as the bill’s chief sponsor,
Senator Proxmire stressed the limited nature o f the authority being vested in the


   4    In fact, ihe conference report describes the purposes o f the C RA in very m odest term s. “This title and
other am endm ents contained in this bill are designed to en co u rag e m ore coordinated efforts betw een pnvate
investm ent and federal grants and insurance in o rd er to in crease the viability o f our urban com m unities."
H R C o n f R ep No. 95-634, at 76 (1977), rep rin ted in 1977 U S C C .A N 2965, 2995

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 agencies. W hen introducing the bill, Senator Proxmire stated that the CRA “is
 intended to establish a system of regu latory incentives to encourage banks and
 savings institutions to more effectively meet the credit needs of the localities they
 are chartered to serve.” Id. at 1958 (emphasis added). During floor debate on the
 legislation, he stated that “we have to do something to nudge [the banks], influence
 them, p ersu a d e them to invest in their com munity.” Id. at 17,630 (emphasis
 added). He stated during hearings on the CRA that “[w]hat are we [sic] trying to
do here is not to provide for any terrible sanction. . . . All we are saying is that the
job that you do in servicing community needs should be taken into consideration
as one elem ent in w hether or not branching should be approved. It is a mild pro­
posal, it seems to m e.” Community C redit N eeds: H earings on S. 4 0 6 Before the
Senate Comm, on Banking, Housing and U rban Affairs, 95th Cong. 323 (1977)
(emphasis added).5
    Finally, it is “an ‘elemental canon’ of statutory construction that where a statute
expressly provides a remedy, courts must be especially reluctant to provide
additional rem edies.” Karahalios v. N ational F e d ’n o f Fed. Em ployees, 489
U.S. 527, 533 (1989) (quoting Transam erica M ortgage Advisors, Inc. v. Lewis,
444 U.S. 11, 19 (1979)).6 “In such cases, ‘[i]n the absence o f strong indicia
of contrary congressional intent, we are com pelled to conclude that Congress
provided precisely the remedies it considered appropriate.’” K arahalios, 489 U.S.
at 533 (quoting M iddlesex County Sew erage Auth. v. Sea Clam m ers A s s ’n,
453 U.S. 1, 15 (1981)). To move from an enforcement scheme that relies upon a
system o f regulatory incentives to a scheme that entails cease-and-desist orders and
potentially substantial monetary penalties is a leap that we do not believe can be
justified on the basis o f the text, purpose, and legislative history of the CRA. We
therefore conclude that enforcement under 12 U.S.C. § 1818 is not authorized by
the CRA.



    5 S e n a to r P roxm ire did state w hen introducing the co n feren ce report on the Senate floor that “the inten-
tion [o f C o n g ress] is as stated in [ 12 U S C § 2 9 0 1 (b )] thal the agencies use the full extent o f their authority,
including th eir gen eral re g u lato ry authority, u n d e r [12 U .S C. § 2905], to encourage all regulated depository
in stitu tio n s’ re sp o n siv en ess to com m unity n e e d s .” 123 C ong Rec. 31,887 (1977) H ow ever, at best this
statem en t is am b ig u o u s, the d ire c tio n to use full regulatory authority probably was sim ply in reference to the
section o f the C R A d ire c tin g the agencies to prom ulgate im plem enting regulations and not to som e other
grant o f en fo rcem en t au th o rity such as 12 U S C § 1818. It is im possible to know w hat regulations S enator
Proxm ire e x p ected the ag en cies to issue, alth o u g h we note th at (consistent with the phrasing in C R A ’s
statem en t o f p urpose sectio n ) he used the w ord “en co u rag e” to describe w hat im pact the regulations should
have on in stitu tio n s ra th e r than a w ord like “ req u ire ” M oreover, we do not believe this one statem ent, even
if read bro ad ly , can su p p o rt a g e n eral grant o f enforcem ent authority to the agencies in light o f the statutory
text and o th er leg islativ e history.
    6 T h a t K a ra h a lio s and the cases cited th e re in involved claim ed private rights o f action does not make
them inapposite. First, the u n d erly in g inquiry o f those cases and this case is the sam e' can congressional
intent to en fo rce a statu to ry sch e m e in a p articu lar way be inferred from the statutory language, structure or
legislative h istory? S econd, co u rts if anything have broader pow er than adm inistrative agencies to fashion
appropriate relief, courts, for e x am p le, may lo o k to their broad equitable jurisdiction

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                                                      III.

     We reach the same conclusion when we analyze the question by focusing di­
rectly on 12 U.S.C. § 1818. Under that section, the agencies may issue a cease-
and-desist order against a financial institution that “is violating or has violated, or
. . . is about to violate, a law, rule, or regulation,” 12 U.S.C. § 1818 (b)(1), and
they may impose civil monetary penalties against an institution that violates “any
law or regulation” or any cease-and-desist order, 12 U.S.C. § 1818(i)(2). It might
be argued that such sanctions may be imposed upon an institution that receives a
“substantial noncompliance” CRA rating because that would be a violation of the
CRA or the proposed regulations. As discussed below, we reject that argument.
     By its terms, the CRA provides only that the agencies must evaluate an institu­
tion’s record of meeting the credit needs of the community, that the agencies must
take that record into account when considering an institution’s application for per­
mission to merge or expand, and that the agencies must prepare a written record of
their evaluations for public dissemination. Nowhere does the CRA expressly im­
pose any obligation on financial institutions themselves. The statute’s references
to financial institutions are couched in precatory rather than mandatory terms.
In the “statement of purpose” provision of the CRA, Congress stated that “ [i]t is
the purpose of this chapter to require each appropriate Federal financial supervi­
sory agency to use its authority . . . to encourage such institutions to help meet the
credit needs o f [their] communities.” 12 U.S.C. § 2901(b) (emphasis added). The
CRA does not instruct the agencies to require institutions to meet community
credit needs. Moreover, although the CRA directs the agencies to take an institu­
tion’s record of meeting credit needs into account when evaluating the institution’s
application for a deposit facility, 12 U.S.C. § 2903, it does not require the agencies
to deny applications from institutions with questionable records.7
     Nor are any obligations, violation o f which is sanctionable under § 1818, im­
posed by the following statements in the “Congressional findings” section of the


    7      The case law recognizes thal w hile the agencies are authorized to refuse to approve applications from
financial institutions that do not m eet the credit needs o f their com m unities, they are not required to do so.
In one case that involved a challenge to an ag en cy 's approval o f an institu tio n ’s application to open a branch
office, the court refused to invalidate the approval on the grounds that the agency and the requesting institu ­
tion had allegedly failed to com ply w ith the requirem ents o f the C R A C orning Sav. & Loan A s s 'n v. F ed ­
eral H om e Loan B ank Bd., 571 F Supp 396 (E .D ^ rk 1983), a ffd , 736 F 2d 479 (8th C ir 1984). T he
court stated that “ [t]he C R A itself does not provide for any sanctions for an unsatisfactory record, nor does it
even define w hat an unsatisfactory record w ould be The C R A m erely requires that the Board assess an
in stitutio n ’s co m m u n ity credit record and consider lhat record w hen evaluating branch a p plications.” 571 F
Supp. at 403 S e e also N a tio n a l State B a n k v Long, 630 F 2d 981, 984 (3d C ir. 1980) (in deciding there was
no federal law ex p licitly prohibiting redlining, so that a state anti-redlining statute was not preem pted, the
court staled that under the CRA , “the C o m p tro ller m ay, but need not, deny an application for a deposit facil­
ity lo a national bank that fails to m eet the needs o f us local co m m unity” ); H icks v Resolution Trust C orp.,
970 F.2d 378, 382 (7th Cir. 1992) (in concluding lhat a fired em ployee could not state a claim for retaliatory
discharge because the C R A did not constitute a clearly m andated public policy, the court stated that the Act
does not provide for crim inal sanctions o r private causes o f action; agencies m ay “at m ost” consider an in ­
stitu tio n 's record w hen evaluating an application)

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CRA: that ”[t]he Congress finds th a t. . . regulated financial institutions have con­
tinuing and affirm ative obligation to help meet the credit needs of the local com­
m unities in which they are chartered,” 12 U.S.C. § 2901(a)(3), and that “[t]he
C ongress finds that . . . regulated financial institutions are required by law to dem ­
onstrate that their deposit facilities serve the convenience and needs of the commu­
nities in which they are chartered to do business,” 12 U.S.C. § 2901(a)(1). These
findings are an indicator o f congressional intent and may be looked to by the agen­
cies in form ulating their regulations to im plem ent the CRA. However, they are not
“operative provisions” o f the statute and thus cannot by themselves impose obliga­
tions on financial institutions or override operative provisions that indicate that
Congress did not intend to impose an obligation violation o f which is sanctionable
under § 1818. S ee A ssociation o f Am. R.R. v. C ostle, 562 F.2d 1310, 1316 (D.C.
Cir. 1977) (“A pream ble no doubt contributes to a general understanding of a stat­
ute, but it is not an operative part of the statute and it does not enlarge or confer
powers on adm inistrative agencies or officers. W here the enacting or operative
parts o f a statute are unambiguous, the meaning o f the statute cannot be controlled
by language in the pream ble. The operative provisions o f statutes are those which
prescribe rights and duties and otherwise declare the legislative w ill.”). See also
C ouncil o f H aw aii H otels v. A gsalud, 594 F. Supp. 449, 453 (D. Haw. 1984)
(in determ ining whether Hawaii legislature intended to regulate collectively bar­
gained health care plans, court rejected defendants’ argument that “findings and
purpose” section o f statute authorized state regulation of the plans when an opera­
tive provision o f the statute made it clear that the plans were not subject to regula­
tion).
    Finally, we do not believe that the agencies’ authority under the CRA to issue
im plem enting regulations includes th e authority to impose an obligation, enforce­
able under § 1818, to meet community credit needs that was not imposed by Con­
gress.     The agencies’ rulemaking authority is limited to “carrying] out the
purposes” o f the CRA, 12 U.S.C. § 2905, and those purposes are limited to re­
quiring the agencies to use their authority to “encourage” financial institutions to
help m eet com m unity credit needs, 12 U.S.C. § 2901(b).              The authority to
“encourage” does not include the authority to impose an obligation enforceable by
cease-and-desist orders and money penalties. See N ew York v. H eckler , 719 F.2d
 1191, 1196 (2nd Cir. 1983) (holding that statutory language directing entities re­
ceiving federal funding “to encourage family participation” in m inors’ receipt of
contraceptive services did not authorize HHS to promulgate regulations requiring
parental notification following a m inor’s purchase of contraception).
    W e em phasize that our conclusion that § 1818 sanctions are not available is
not intended to suggest that the provisions of the proposed CRA regulations re­
garding an obligation to help meet the credit needs of the community are invalid
for other purposes under the CRA or any other statute, such as to assist the exercise
of agency authority during examinations and in the application process. Nor is it

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intended to suggest that other provisions of the proposed CRA regulations impos­
ing requirements on financial institutions, such as data collection and reporting
requirements, are not authorized by the grant of authority to promulgate regula­
tions. Moreover, we express no opinion on the availability of § 1818 sanctions for
violations of a law, rule, or regulation in any context other than the CRA.

                                                  IV.

    The purpose of the CRA is to require the federal financial supervisory agencies,
in the execution of their examination function, to encourage financial institutions to
meet community credit needs. The CRA requires that the agencies assess financial
institutions’ records in this regard and consider their records when evaluating their
applications for deposit facilities. In connection with this requirement, the agen­
cies may promulgate regulations placing reasonable requirements on financial in­
stitutions to enable the agencies to assess their performance. W e conclude,
however, that the agencies lack authority under the CRA to provide by regulation
that financial institutions that do not meet the credit needs of their communities
may be subject to enforcement actions under 12 U.S.C. § 1818.


                                                            W ALTER D ELLINGER
                                                          A ssistan t A ttorn ey G en eral
                                                            Office o f L egal C ounsel




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