Regulators plan to withdraw overhauls to anti-redlining rules

Bloomberg News

Bank regulators are backing down from the fight over their recent reforms to the Community Reinvestment Act.

The Federal Reserve, Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency will propose rescinding the CRA rule they finalized in October 2023 and reverting to their previous review standards, according to a press release issued Friday morning. 

In the statement, the agency cited concerns about "pending litigation" against the rule. They also pledged to "work together to promote a consistent regulatory approach on their implementation of the CRA."

The 2023 rule was the first substantial change to the banking agencies' implementation of the 1977 civil rights legislation in roughly three decades. It had been years in the making, advancing in fits and starts over multiple presidential administrations. At face value, the reforms were meant to modernize how regulators define assessment areas and evaluate banking activities, but banking groups say the new framework exceeds the limitations of the law. 

The original CRA framework sought to measure how well banks engaged low-income communities immediately surrounding their branches, based on the assumption that most deposits came from customers in the immediate vicinity of those physical locations. To account for the advent of online and mobile banking, the agencies' new rule expanded CRA assessment areas to where banks do significant business. 

In February 2024, several banking groups — including the Independent Community Bankers of America, the American Bankers Association, the Texas Bankers Association and Independent Bankers Association of Texas — sued the agencies in federal court. They argued that the changes increased the complexity and compliance costs associated with the CRA by creating "boundless" assessment areas. 

The move to withdraw the final rule is the latest sign that banking agencies are questioning how well their rules can stand up to legal challenges in light of recent landmark court cases, including Loper Bright v. Raimondo, the 2024 ruling that upended the principle known as Chevron Deference, in which agencies were deemed uniquely qualified to interpret their own authorizing statutes. 

Late last year, the Fed announced its intention to revise its annual stress testing practices ahead of a potential legal challenge, noting that the "framework of administrative law has changed significantly in recent years." Banking groups filed a lawsuit regarding the Fed's stress testing practices one day later. 

OCC

OCC's Rodney Hood announces restructured financial inclusion unit

March 27, 2025 2:56 PM

The rescission of the CRA rule is also the latest defeat for the Biden era regulatory agenda under the Trump administration. Earlier this week, the Senate voted to block the Consumer Financial Protection Bureau's overdraft rule. Congress is also looking to overturn a CFPB rule barring medical debts from appearing on credit reports. Elsewhere in the government, the Securities and Exchange Commission withdrew its Staff Accounting Bulletin 121, which limited banks' ability to hold crypto assets in custody.

Various lawsuits and enforcement actions against banks and other financial institutions have also been dropped in recent weeks, including the SEC's case against Kraken, which was withdrawn Thursday.

The banking agencies' announcement did not specify when they would begin the process of withdrawing the new CRA rule. In the past, Fed Chair Jerome Powell has said the central bank would hold off on major regulatory undertakings until new regulatory heads were installed at the FDIC and OCC.