Bank regulators to propose rewrite of anti-redlining rules

The Office of the Comptroller of the Currency (OCC) on Tuesday announced it will scrap a May 2020 rewrite of anti-redlining regulations and work with the Federal Reserve and Federal Deposit Insurance Corp. (FDIC) on a replacement rule.

The agency said in a statement that it will propose rescinding regulations issued under a Trump-appointed chief last year meant to modernize how banks comply with the Community Reinvestment Act (CRA). The OCC will instead team up on a new rewrite with the Fed and FDIC, which also enforce the CRA, after both declined to back the agency’s May rule.

“To ensure fairness in the face of persistent and rising inequality and changes in banking, the CRA must be strengthened and modernized,” said Acting Comptroller Michael Hsu, an appointee of President Biden.

“While the OCC deserves credit for taking action to modernize the CRA through the adoption of the 2020 rule, upon review I believe it was a false start. This is why we will propose rescinding it and facilitating an orderly transition to a new rule.”

The CRA is a 1977 law intended to ensure banks adequately serve low-to-moderate income and majority-minority neighborhoods. Those communities were often overlooked or outright ignored by banks for decades, deepening racial wealth inequality and financial barriers among the most economically vulnerable Americans.

Under the CRA, banks that fail to lend sufficiently and operate within underserved communities can face regulatory penalties that include a ban on potential mergers and acquisitions. While lawmakers and advocates broadly agree that those standards need to be updated, there is fierce debate over how exactly that should happen.

The OCC last year released an updated version of CRA regulations under Comptroller of the Currency Joseph Otting, a former banker who frequently sparred with Democrats, just one day before his resignation. But neither the Fed nor FDIC agreed to adopt those rules, which were also fiercely criticized by Democrats and financial sector critics.

“The disproportionate impacts of the pandemic on low and moderate income communities, the comments provided on the Board’s Advanced Notice of Proposed Rulemaking, and our experience with implementation of the 2020 rule have highlighted the criticality of strengthening the CRA jointly with the [Fed] and FDIC,” Hsu said.

The new version will be based off a notice of proposed rule-making released by the Fed in September 2020.

“We are delighted to work together,” said Fed Governor Lael Brainard in a statement, adding that the bank’s framework is intended ensure the CRA “remains a strong and effective tool to address inequities in access to credit and meet the needs of low- and moderate-income communities and garners broad support.”

The announcement won praise for both the banking industry and its skeptics, who said they were eager for all three regulators to find common ground on a stronger CRA.

“The application of inconsistent CRA standards to banks regulated by different federal banking agencies would harm the banking industry’s ability to work together with the communities it serves to identify and execute on meaningful community reinvestment opportunities, said Dafina Stewart, senior vice president and associate general counsel for the Bank Policy Institute.

“We look forward to a coordinated interagency approach, which will produce the best outcomes for low- to moderate-income and underserved minority communities.”

Updated at 5:20 p.m.