The regulation implementing anti-redlining laws will change for a third time in the last six years, according to the federal banking regulators who have agreed to rescind the latest changes adopted in 2023, the agencies said Friday.
In joint releases, the three federal banking agencies said that, “in light of pending litigation,” the agencies intend to issue a proposal to both rescind the Community Reinvestment Act (CRA) final rule issued in October 2023 and “reinstate the CRA framework that existed prior to the October 2023 final rule.”
That framework dates to 1995.
The agencies said they will “continue to work together to promote a consistent regulatory approach on their implementation of the CRA.”
There were no other details provided in the agencies’ releases.
Two years ago, the Federal Reserve, Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corp. (FDIC) adopted a revamped CRA regulation. They said the new rule “updated, modernized” the previous rule.
However, most of the new rule’s requirements were not applicable until the start of next year. The remaining requirements, including data reporting requirements, were not applicable until Jan. 1, 2027.
In December 2023, the agencies said that CRA revamp had four key goals, which were to:
- Encourage banks to expand access to credit, investment, and banking services in low and moderate income (LMI) communities.
- Help the CRA regulations adapt to changes in the banking industry, including internet and mobile banking.
- Provide greater clarity and consistency in the application of the CRA regulations.
- Tailor CRA evaluations and data collection to bank size and type.
However, banking groups challenged the rule in federal court, winning an injunction in 2024 against its implementation. The groups have also filed an appellate brief in the U.S. Court of Appeals. In that brief, the groups argued that the rule (among other things) unlawfully evaluates banks’ performance nationwide, not within the bank’s “community);” is intended to only evaluate banks’ performance as to community credit needs; and inflicts “quintessential irreparable harm through significant, unrecoverable compliance costs.”
Banks have also argued that the rule requires an “unnecessarily complex” evaluation that could force banks to close branches or reduce product offerings.
The 2023 CRA rule followed the adoption in 2020 of a revamped CRA rule by only one regulator, the OCC. Then-Comptroller of the Currency Joseph Otting (appointed by then-President Donald Trump (R)) issued that final rule without the participation of either the Fed or the FDIC, even though the FDIC (then headed by Chairman Jelena McWilliams) participated in the proposed rulemaking. The Fed declined to attach to either the proposed or final rule.
Otting resigned in 2020 as comptroller shortly after his agency issued its final rule, having served one of the shortest tenures ever as a Senate-confirmed comptroller (he took office in 2017 to serve a five-year term), and the first in 35 years not to serve his full five-year term. No reason was given at the time for his resignation.
However, in December 2021, the latest acting comptroller of the currency, Michael Hsu (appointed by then-President Joe Biden (D)) rescinded Otting’s rule. That meant the CRA rule reverted generally to a version all three banking agencies adopted in 1995.
Agencies announce intent to rescind 2023 Community Reinvestment Act final rule