WASHINGTON–For the third time in six years laws designed to stop redlining in lending will change, according to three banking regulators who have adopted new rules. 

The three banking agencies announced they are rescinding redlining rules that were implemented two years ago. 

The Federal Reserve, Office of the Comptroller of the Currency (OCC) and FDIC announced in a joint statement that “in light of pending litigation,” they intend to issue a proposal to both rescind the Community Reinvestment Act (CRA) final rule issued in October 2023 and “reinstate the CRA framework that existed prior to the October 2023 final rule.”

That CRA framework dates back to 1995.

In addition, the agencies said in their statement they will “continue to work together to promote a consistent regulatory approach on their implementation of the CRA” and that the new rule “updated, modernized” the previous rule.

There were few other details provided.

Worth Noting

It should be noted that many of the new rule’s requirements were not applicable until 2026, and other requirements, including data reporting requirements, were not to go into effect until Jan. 1, 2027.

In 2023, when the FDIC, Fed and OCC announced their overhaul of CRA they said had done so with four goals:

• Encourage banks to expand access to credit, investment, and banking services in low and moderate income communities.
• Help the CRA regulations adapt to changes in the banking industry, including internet and mobile banking.
• Provide greater clarity and consistency in the application of the CRA regulations.
• Tailor CRA evaluations and data collection to bank size and type.

Court Challenge

The 2023 rules were challenged in federal court by several banking group, which in 2024 won an injunction. The groups have also filed an appellate brief in the U.S. Court of Appeals. In their legal brief, the plaintiffs argued that the rule (among other things), the proposal:

• Unlawfully evaluates banks’ performance nationwide, not within the bank’s “community)”
• Is intended to only evaluate banks’ performance as to community credit needs
• Inflicts “quintessential irreparable harm through significant, unrecoverable compliance costs”

The rule that was adopted in 2023 followed the adoption in 2020 of a revamped CRA rule by the OCC.