Regulators propose eliminating 2023 CRA rule

Federal regulators earlier this month proposed rescinding a 2023 Community Reinvestment Act rule requiring larger community banks to face the same CRA standards as the largest financial institutions. .In fall 2023, the Federal Reserve, FDIC and Office of the Comptroller of the Currency issued a final rule modernizing CRA for the first time since 1995. The updated rule would require community banks with more than $2 billion in assets to go through a new retail lending test, face expanded assessment areas and undertake more rigorous data and reporting obligations. The final rule was set to take effect in April, with some bank compliance requirements effective by Jan. 1, 2026, and Jan. 1, 2027. To account for the rise in mobile banking, the updated standards would also require banks to lend to lower-income communities in areas where they have a concentration of small business and mortgage loans, not just physical branches. Comments on the proposal will be accepted through Aug. 18. After considering public comments, the agencies could then formally rescind the 2023 rule. The proposed rescission is “pretty important” for banks as the rule is “overly prescriptive and overly complex,” said Karen Grandstrand of Minneapolis-based law firm Fredrikson. The vote to propose eliminating the rule was the first unanimous decision by the Federal Reserve Board this year, she added. The elimination of the 2023 rule wouldn’t impact most of Grandstrand’s clients as most had opted to stick with the previous standard. Banking trade groups have opposed the 2023 standards since they were introduced, and litigation had already placed CRA reform on hold. In September 2023, the Independent Community Bankers of America and other groups filed an appellate brief with New Orleans-based U.S. Court of Appeals for the Fifth Circuit challenged the final rule, saying it violated the Administrative Procedure Act by evaluating banks’ performance on a national basis, not within the parameters of the bank’s defined community. The groups also claimed the rule would reduce future bank lending. Federal Reserve Vice Chair for Supervision Michelle Bowman, who at the time was a Fed governor, said regulators likely exceeded their authority by modernizing CRA rules without Congressional action. “Some of the changes made by the agencies, including those that evaluate banks outside of their deposit-taking footprint, are likely beyond the scope of our authority under the statute,” Bowman said in November 2023.