February 6, 2023 — Letter

Americans for Financial Reform Education Fund, National Consumer Law Center, and the undersigned organizations urge the Federal Reserve Board to ensure that financial institutions carefully consider the potential impacts of climate-related financial risks in the context of racial, economic, environmental, and climate justice and the financial institutions’ obligations under the Fair Housing Act, the Equal Credit Opportunity Act, the Community Reinvestment Act, and the Board’s own obligation under the Fair Housing Act to affirmatively further fair housing.

The Board must consider how climate risk guidance will interact with fair lending principles and regulation and consumer financial protections, and how banks can leverage newly available resources–like those authorized by the Inflation Reduction Act–to manage climate risk in fair and equitable ways. Prudential climate financial regulation is long overdue and is vital to protecting the banking system, but it must not result in additional burdens on vulnerable communities and households, the very consumers who are most at risk from climate impacts, and it must support the Administration’s Justice goals.

To this end, it is critical that the Board–along with the other federal banking regulators–tailor this climate supervisory framework in a way that recognizes the important role credit and banking services should play in helping vulnerable communities in building resilience to and mitigating climate disasters. Such guidance should include how banks can and should maintain the operational resilience of the critical services they provide. It should also encourage banks to support community investment in adaptation and resilience instead of withdrawing credit, to finance green investment, and to protect consumers from unsafe “green” financial products that lack adequate consumer protections and/or do not deliver purported climate benefits.

The Board should also strengthen and finalize its recent proposal on the Community Reinvestment Act (CRA) regulations to address the impact of climate-related financial risks on climate-vulnerable Black, Latino, Asian American and Pacific Islander, and Native Communities, Communities of Color, and low- to moderate-income (LMI) communities, discourage harmful investments that exacerbate climate change, and encourage lending for climate mitigation and resilience.

The Board should harmonize this guidance with updated CRA regulations to establish cohesive, clear expectations for how banks can operate safely in this new context.