NYC Law Meant to Curb Banking Bias Tossed Out

MANHATTAN (CN) - Though monitoring how banks serve poor neighborhoods is a lofty goal, a federal judge struck down New York City's "responsible banking" law as unconstitutional.

New York City Council's Responsible Banking Act of 2012 sought to create a Community Investment Advisory Board to monitor how well banks serve poor neighborhoods before they could handle the city's $6 billion in deposits.

The New York Bankers Association, which represents more than 140 banks, filed suit in May to block the law as unconstitutional.

U.S. District Judge Katherine Polk Failla of Manhattan sided with the challengers last week, in a decision the court publicized Tuesday.

While the city council's "animating concerns" were "valid," Failla said "the means by which it sought to harness banks to redress those concerns intrudes on the province of the federal and state governments."

Federal and state law both pre-empt the act, and "its unconstitutional provisions cannot be severed," the 71-page ruling states.

Failla noted that Mayor Bill De Blasio resurrected the legislation after his predecessor, Michael Bloomberg, vetoed the bill when first introduced after finding it "misguided."

The NYBA's May lawsuit came after de Blasio threw his support behind the initiative, but it challenged the law back in 2013 as well.

Polk's ruling prompted gratitude from the group.

"This is an important decision for the banking industry with nationwide ramifications," NYBA President Michael Smith said in a statement.

"The banks in New York will continue to be supervised by state and federal regulators, and will continue to reinvest in the communities in which they operate."

A spokesman for the city's law department meanwhile called the decision disappointing.

"The city has a vital role in understanding the effect banks are having on the economic health of our neighborhoods," the spokesman said in an email "We are reviewing the decision and considering our options."

City Local Law No. 36 sought to establish a Community Investment Advisory Board to collect information from banks that handle the city's $6 billion in deposits and publish on the city's Department of Finance's website "evaluations of the extent to which such banks meet 'credit, financial and banking services needs throughout the city."

In its first lawsuit, the banking institution claimed the law "impermissibly empowers the CIAB to become a local bank regular, with the power to regulate the activities of any federal or state bank that does, or wishes to do, deposit business with the city."

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