U.S. bank regulators announced their intention to rescind a 2023 update to fair lending rules and reinstate the previous requirements, following a legal challenge from the banking industry regarding the new framework.
In a joint statement, the Federal Reserve, Federal Deposit Insurance Corporation, and Office of the Comptroller of the Currency expressed plans to propose reinstating the earlier rules enforcing the Community Reinvestment Act (CRA), a 1977 law that mandates banks to serve local communities.
The changes aimed to modernize CRA requirements while recognizing the growth of online banking. The more stringent regulations would have required banks to extend their services to lower-income Americans, reaching beyond their physical locations to accommodate a large number of online users.
Last year, U.S. banking and business groups challenged the new rules, contending that they overstepped regulatory authority and could impede lending. A Texas judge temporarily halted the enforcement of these new rules.
Originally designed to prevent redlining—a discriminatory practice where banks limit lending to specific areas or populations, often targeting minorities—CRA regulations are integral to a bank's overall performance assessment. Poor CRA ratings can place lenders in a so-called penalty box, prohibiting them from engaging in mergers and other transactions.