US Regulators Plan to Withdraw Overhauls to Anti-Redlining Rules

Top US banking regulators plan to withdraw an overhauled rule meant to tackle redlining and boost lending to lower-income areas after industry groups sued to block the updated legislation last year.

The Federal Reserve, Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency said they plan to rescind the Community Reinvestment Act final rule, which was issued in 2023 as an update to the decades-old legislation. The regulators intend to reinstate the prior CRA framework, they said in a statement Friday.

“The agencies will continue to work together to promote a consistent regulatory approach on their implementation of the CRA,” they wrote.

The effort to revamp the CRA — which was aimed at addressing discriminatory lending practices by banks and federal agencies — had faced criticism from both industry and consumer advocates. Banking trade groups sued regulators to block the overhauls last year, arguing they were complex and would actually discourage banks from lending. Meanwhile, critics have said the changes didn’t go far enough.

President Donald Trump has been pushing to purge diversity, equity and inclusion policies from the federal government and corporate America, issuing executive orders banning the practice and asking agency heads to identify targets. The head of the US Federal Housing Finance Agency this week ordered an end to Fannie Mae and Freddie Mac programs designed to help economically or socially disadvantaged groups get on the housing ladder.

Read More: Bank Groups Sue US Regulators to Halt Anti-Redlining Rules

Under the rule, US banks are obligated to partner with and finance community groups and low-income borrowers to help reverse the effects of redlining, the practice that historically excluded minority groups from banking and real estate services.

In late 2023, regulators updated the rules to cover online and mobile banking services. That means the grades that regulators give firms for lending to low- and moderate-income communities won’t be based just on the locations of physical branches. The overhaul also stiffened other criteria for big lenders. Banking trade groups had argued the new criteria for rating lending could make it too hard to achieve a high score.

The American Bankers Association, US Chamber of Commerce and the Texas Bankers Association were among the groups that filed the lawsuit against the regulators in the Northern District of Texas in February last year, asking the court to vacate the final rules. According to an FDIC document, the revamped rule was halted following the litigation.

--With assistance from Katanga Johnson and Stephanie Stoughton.

To contact the reporter on this story:
Sally Bakewell in New York at sbakewell1@bloomberg.net

To contact the editors responsible for this story:
Michael J. Moore at mmoore55@bloomberg.net

Reade Pickert, Steve Dickson

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