Banks have become increasingly frustrated with their federal regulators and, in a break with tradition, have brought the battle out into the open.
In an effort to overturn new rules and challenge the legitimacy of regulators’ powers, bank lobbyists have added legal threats and public attacks to the more usual lobbying efforts that once took place behind closed doors on Capitol Hill.
In recent months, trade groups representing banks of all sizes, including the American Bankers Association, the Independent Community Bankers of America and the Bank Policy Institute, have accused federal regulators like the Consumer Financial Protection Bureau and the Federal Reserve of regulatory overreach.
Cam Fine, a former longtime president of the community bankers group, said the cultural shift leading to the lawsuits was notable. In his 18 years at the group, he said, he could remember going to court only twice.
“You almost had to have some sort of cataclysmic event before a trade association like mine would file suit in the courts,” Mr. Fine said.
Trade groups recently filed a lawsuit against the consumer bureau over a new rule requiring banks to share data on their small-business lending practices, and another over a new initiative to examine them for potential discrimination. They have filed court papers in support of a constitutional challenge to the C.F.P.B. that is pending before the Supreme Court.
They’ve threatened other suits, including against the Federal Deposit Insurance Corporation, the Fed and the Office of the Comptroller of Currency over a newly finalized implementation of the 1977 Community Reinvestment Act, and they’re expected by some analysts to sue the Fed and other regulators over the proposed tightening of capital rules.
Regulators say they are using powers they have long held to address specific problems in the industry, like racial discrimination. And a crisis among midsize banks that led to the collapse of four lenders this year has added urgency to the need for stricter capital rules, they say.
“We won’t comment on specific regulations, but President Biden supports common-sense reforms to reverse Trump-era weakening of the supervision of large regional banks to strengthen our banking system and protect American jobs,” said Michael A. Kikukawa, a White House spokesman. “A safe and diversified banking sector —including healthy community and regional banks — is a source of strength for our economy.”
Lobbyists say the Biden administration has picked regulatory heads who are often unwilling to compromise or listen to their concerns. The lobbyists’ tactics are a stark contrast to how they behaved under the Trump administration, when regulators rolled back rules so drastically that even the banking industry feared they were going too far.
But the public campaigns, which consumer advocates worry could undermine the authority of regulators, are also a product of the country’s acrimonious political discourse. What was once handled quietly, out of public view, is now settled through knockout fights, said Mr. Fine, the former leader of the community bankers.
“We just didn’t think that way,” he said. “We would try to remedy it within the agencies. We’d appeal to the agencies and we’d sit down with them and we’d meet with them over and over and over again to try to get them to modify their rules and many times we’d be successful.”
The Independent Community Bankers of America, which represents around 5,700 community banks, is fighting a rule requiring lenders to provide regulators with demographic details of all small-business loans — such as the borrower’s race and location — to determine whether banks are making loans fairly. In August, the organization joined a lawsuit that other trade groups had filed to block the rule.
The decision to “litigate public policy through the courts is not a trivial matter,” said Anne Balcer, the group’s chief lobbyist. Rather, she said, it’s a last resort in response to regulators’ “extraordinary” demands, which the group says are too onerous for small banks to meet.
Allison Preiss, a spokeswoman for the Consumer Financial Protection Bureau, said in a statement that regulators had “carefully considered public feedback and made important changes from the original proposal” before finalizing the small-business lending rule, including “simplifying and streamlining compliance for all institutions — especially smaller lenders.”
The industry groups have also undertaken rigorous public influence campaigns.
Last month, when the Senate voted to repeal the small-business lending-data rule, the community bankers association commended the move in a news release emailed to journalists, adding a public element to what would likely have been a series of quiet conversations with lawmakers in the past.
In public posts, the Bank Policy Institute and the Financial Services Forum, which represent the largest banks, have criticized proposed rules by multiple regulators, including the Fed, to tighten capital requirements. They have decried “excessive” changes and warned of “the coming $1.4 trillion tax on financial services provided by large banks.
Many observers believe these public statements are preludes to a lawsuit.
“It seems clear that a lawsuit is likely,” said Ian Katz, a financial policy analyst at Capital Alpha Partners, a Washington research firm, who said that even if the Fed tweaked the proposed rule before finalizing it, the changes would likely not be significant enough to satisfy bankers. “They also feel like they have strong procedural grounds on which to base a lawsuit.”
Jamie Dimon, the chief executive of JPMorgan Chase, the largest U.S. bank, in September called the Fed’s proposal, which was made in concert with other federal bank regulators, “hugely disappointing.”
In taking on regulators directly, lobbyists have adopted a playbook typically favored by outside interest groups, which are not regulated and often employ more aggressive strategies to push for change, including when President Donald J. Trump was in office.
“The Trump administration really changed the tone and dialogue around regulations,” said Jesse Van Tol, president of the National Community Reinvestment Coalition, a group that pushes banks to do business in poor and minority communities and generally supports tougher regulations.
“Many of us who were fighting tooth and nail all of the things that were coming during the Trump administration used similar tactics.”
Lobbyists have had some victories. In September, a federal court ruled that the consumer bureau does not have the authority to check banks for discrimination and, in a separate case last year, an appeals court ruled that its funding structure was unconstitutional.
In an Oct. 26 ruling, a federal judge in Texas said small banks did not have to adhere to the consumer bureau’s small-business-loan reporting rule while the Supreme Court considered the matter of its funding structure. Ms. Preiss, the C.F.P.B. spokeswoman, said the regulator would “continue to respond in court” to legal challenges to the rule.