NEW YORK CITY–A law here requiring banks to make public their efforts at being socially responsible, especially in low-income neighborhoods, has been ruled unconstitutional by a federal court.
Judge Katherine Polk Failla of the Federal District Court of Manhattan said the three-year-old Responsible Banking Act is in conflict with federal and state statutes for bank regulation that are already in place.
“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,” Failla said in her ruling.
New York City’s law department expressed disappointment in the ruling and said it was exploring options.
The law, passed in 2012, created an advisory committee that was charged with assessing whether banks that held more than $6 billion in city deposits were providing sufficient credit to small businesses and modifying mortgages in low- and middle-income neighborhoods. The law was initially vetoed by Michael Bloomberg, but the veto was then overridden by the city council. Bloomberg then declined to name anyone to the advisory board.
New Mayor Bill de Blasio, however, has taken steps to enforce the law, including making appointments to the oversight committee. Among the first acts by the committee were letters sent to the banks affected by the law. The letters sought information on the number of foreclosure actions, loan modifications, and the number of loans held by the banks that were at least 60 days delinquent. Banks have objected to the requests, arguing that some of the information requested was confidential, involved trade secrets and would be expensive for the banks to produce.
The law was then challenged by The New York Bankers Association, which led to the ruling by the court.