Banks Praise Trump’s Plan to Scrap Biden Anti-Redlining Update

Federal regulators’ proposal to withdraw a Biden-era anti-redlining rule drew praise from banks, but critics said reverting to a policy from three decades ago doesn’t account for the way modern banking works.

The Federal Reserve, the Federal Deposit Insurance Corp., and the Office of the Comptroller of the Currency in July proposed rescinding a 2023 update to a rule implementing the Community Reinvestment Act.

The Biden administration had expanded CRA reviews to cover—for the first time—banks’ online and mobile lending to low- and moderate-income communities.

Reversing those changes “would allow banks to continue to serve their communities pursuant to the goals of the CRA with de minimis additional regulatory burden,” the Bank Policy Institute, a trade group representing the largest banks, said in a comment letter to the banking regulators ahead of a Monday deadline.

The 1977 CRA directs regulators to grade banks for their lending and investment in covered communities and limits branch expansion and merger activity if banks don’t pump enough money into those neighborhoods.

Banks sued to block the rule in February 2024, throwing the Biden-era update into question. The three banking regulators said rescinding the 2023 rule and bringing back the 1995 version would provide certainty to banks potentially affected by the litigation.

But withdrawing a rule in the face of litigation sets a dangerous precedent, Better Markets, an advocacy group for stringent financial regulations, said in its own letter.

“Of course, if that were a valid reason, then all the industry would ever have to do to nullify a rule is file a lawsuit against the rule, given that ‘uncertainty’ is an inevitable and ever-present result of every lawsuit,” Better Markets said.

Changing Landscape

A federal judge in Texas issued a preliminary injunction in March 2024 blocking the Biden administration’s rule from taking effect. Biden-era regulators moved to appeal that decision, but the Trump administration withdrew the appeal while they reworked the rule.

The 2023 rewrite was intended to account for the shift from branch-based banking to mobile banking. It called on regulators to measure banks’ often-significant lending and investment in covered communities even without a branch in place.

“As the banking industry continues to evolve, and as banks continue to close branches at an alarming rate, fewer and fewer communities will benefit from and be covered by CRA’s reinvestment obligations,” Rise Economy, a California community organization, said in its comment letter.

Other commenters supported the proposal to rescind the 2023 rule, but asked the banking regulators to update the 1995 regulatory structure with Biden-era changes to account for lenders’ support for community development financial institutions and affordable housing credits.