Federal regulators scrap 2023 CRA rule

Three federal banking regulators announced on Wednesday the rescission of the Community Reinvestment Act (CRA) final rule issued in October 2023.

The decision made by the governing boards of the Federal Reserve System, the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corp. (FDIC) will result in the agencies reinstating the CRA framework that existed before October 2023. The prior rule was adopted in 1995 but faced some technical amendments.  

“Because the 2023 final rule is subject to legal action and has not taken effect, the agencies continue to apply the 1995 regulations to banks today,” the agencies said in a joint statement. 

The rule issued in October 2023 aimed to modernize enforcement of the 1977 anti-redlining law, which requires U.S. banks to support community development and lend to low-income borrowers in historically underserved areas.

The first major update in nearly three decades, the 2023 rule would have included mobile and online banking in assessments of products and services. It also would have narrowed the focus of the retail lending test to closed-end home loans, small-business loans and small farm loans, among other changes.

But a lawsuit filed by industry groups challenged the updated rule. A federal judge in Texas issued a preliminary injunction in April to block its implementation — just before key provisions were set to take effect. Most requirements under the revised CRA were scheduled to apply starting Jan. 1, 2026.

“The 2023 final rule likely exceeded the statutory authority of the agencies and was unnecessarily complex, overly prescriptive and contained disproportionately greater costs than benefits, adding significantly greater regulatory burden for all banks, but especially for community banks,” said Michelle W. Bowman, the Federal Reserve’s vice chair for supervision.

According to Bowman, the 2023 rule was premised on the assumption that banks were falling short in meeting the credit needs of their communities, despite their continued compliance with both the letter and spirit of the CRA statute.

“Today’s proposal to return to the CRA framework that existed before the 2023 final rule (the 1995 CRA rule) will provide banks with certainty and clarity regarding CRA expectations,” Bowman added. 

Public comments on the proposal are due 30 days after its publication in the Federal Register.