Move would preserve status quo and reduce CRA compliance costs
In an expected move, the federal banking regulators issued a notice of proposed rulemaking (NPRM) to rescind Biden-era amendments to the 2023 regulations implementing the Community Reinvestment Act (CRA). The NPRM, issued by the Federal Reserve Board, Office of the Comptroller of the Currency, and Federal Deposit Insurance Corporation, would roll back the 2023 CRA regulations and reinstate the 1995 version. Because the Biden-era regulations never went into effect and are currently enjoined, the move would essentially preserve the status quo.
Comments on the NPRM are due August 18, 2025.
Key Takeaways
- CRA compliance is important to covered financial institutions and their holding companies. The CRA, in part, determines whether they can engage in expanded financial activities.
- The 2023 regulations would have significantly increased compliance costs—new forms of CRA qualifying activity would be required to maintain or earn the best CRA ratings.
- The proposed rescission of the 2023 interagency regulations would reestablish the status quo into law.
- Is there a future for CRA amendments? It's unclear. The CRA has been the subject of various competing proposals during the last two administrations—not always with interagency coordination—so it is hard to tell what the future holds.
The CRA is a big deal
The CRA was passed in 1977 to, among other things, ensure the provision of consumer and small-business loans in low and medium income communities. Covered banks must meet a variety of metrics within their so-called "assessment areas," that is, geographic areas where the banks have a significant footprint. The CRA requires that federal banking regulators supervise covered banks to make sure that they meet their CRA obligations. The regulators use these supervisory findings in their assessments of proposed mergers, acquisitions, and branch openings, and whether banks, through their holding companies and non-bank affiliates, may engage in expanded financial and other activities.
The regulations implementing the CRA were last substantially revised in 1995. But reformers of various stripes have long sought to modernize them. Under the status quo, almost all banks receive satisfactory ratings on CRA examinations, which critics view as evidence that the standards are too lax.
Most recently, under the first Trump Administration, the OCC moved to unilaterally update its regulations to make a variety of substantive changes to the 1995 CRA regulations, including taking account of increased digital banking. (The rise of online and other digital banking models challenges one of the fundamental assumptions of the 1995 CRA regulations—that a bank's center of gravity is determined by where it has physical locations.) Under President Biden, the OCC retracted its proposed rule, and ultimately, in 2023, the federal banking agencies finalized an interagency overhaul of the regulations.
The 2023 regulations, if implemented, would have significantly increased compliance costs
The 2023 regulations proposed a slate of new requirements for banks, including creating new tests and stricter thresholds to obtain or remain in good standing. The 2023 regulations also changed the formulas that define a bank's assessment area—instead of relying solely on physical locations, the regulations looked to where banks underwrote mortgages and small business loans. The regulations also featured a variety of other changes, including clarifications of certain terms that would have increased regulatory certainty. For example, banks could have gotten CRA credit for participating in various community development activities, and the 2023 regulations would have clarified what activities do and do not qualify.
But expanding assessment areas and holding banks to new and higher standards could have significantly increased compliance costs. For example, when the 2023 regulations were released, Federal Reserve Governor Bowman (now, Vice Chair for Banking Supervision) noted that under the status quo only one percent of banks were assessed as "Needs to Improve" on the CRA's retail lending test—but that number would have jumped to ten percent under the 2023 regulations. Even those banks that enjoyed compliant or favorable ratings would have needed to change business practices and compliance procedures to ensure compliance and responsiveness to regulators going forward. And for banks with national portfolios, the redefinition of assessment areas away from physical locations could have presented further complications. Compounding these upheavals was the short timeline for implementation in the original 2023 regulations: banks would have had just a few years to update their CRA procedures and practices before the new regulations would have gone into effect.
Proposed rescission would reinstate 1995 regulations without change
Before the 2023 regulations went into effect, a cadre of industry groups filed a lawsuit to enjoin their implementation. After a district court granted a preliminary injunction, the agencies appealed to the Fifth Circuit. In March 2025, while the appeal was pending, the federal banking regulators informed the court that they were in the process of preparing to rescind the enjoined 2023 regulations. Accordingly, on the parties' joint motion to stay, the Fifth Circuit stayed its consideration of the industry groups' challenges to the 2023 regulations and the injunction preventing their enforcement remains in effect.
Unlike pending rules that the second Trump Administration has simply withdrawn, however, the 2023 CRA regulations are technically on the books (albeit on ice). So, the agencies need to formally repeal the 2023 regulations through notice-and-comment rulemaking under the Administrative Procedure Act as they advised the Fifth Circuit. That is where we are now: the three federal banking regulators have officially published the NPRM that kicks off the formal rescission of the 2023 regulations and reinstatement of the 1995 regulations.
While administrative law nerds may relish the thought of dueling regulations and preliminary injunctions, the industry largely would prefer the clarity and stability that the proposed reinstatement would restore. Nonetheless, there may be some appetite for more measured changes. For instance, clarifications of qualifying activities and even further modernization may be desirable. In addition, the 2023 regulation created a process for banks to submit potential loans for preapproval, providing banks with greater certainty. Though the new NPRM does not include such provisions, they may percolate up through notice-and-comment or once the dust settles on the final rescission of the 2023 Rule. At the same time, recent staff reductions at the agencies likely means that preapproval of activities would not be the desired model moving forward. In an era of less aggressive enforcement and subjective supervision, good faith compliance with the regulation would appear to be the rule of the road going forward. That could change in the future, however.
Digital banking and financial modernization may also draw CRA reformers back to the debate. The OCC has previously tried to unilaterally update its Rule to account for the rise of digital banking by expanding the criteria used for assessment areas to account for banks that collect a significant number of deposits from outside the area where its main office is located. And the 2023 Rule also tried to expand assessment areas to account for the prevalence of digital banking models. While some have questioned whether this is necessary, the paradigm shift that online and digital banking have caused and will continue to cause (e.g., what constitutes one community in modern society) may lead to further calls for rethinking CRA rules.
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