US bank regulators propose fair-lending rule update

U.S. bank regulators, the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC), have proposed an update to fair lending rules tied to the Community Reinvestment Act (CRA). The proposal, released on Friday, aims to increase scrutiny on how banks distribute grants for community development, requiring them to demonstrate that funds benefit relevant communities and that recipient organizations manage costs effectively.

This update is part of an ongoing effort to revise regulations for the 1977-enacted CRA, which combats discriminatory lending practices like redlining. Banks with less than $10 billion in assets would be exempt from some data collection and reporting requirements, a broader exemption than the previous $1.65 billion threshold.

The agencies stated the proposal would reduce burdens on banks while ensuring grants serve communities. However, the plan quickly drew criticism from Democrats, including Senator Elizabeth Warren and other members of the Senate Banking Committee, who argued the proposal would weaken a critical tool for community investment and worsen the housing crisis.

The future of the rule remains uncertain as the Federal Reserve, which shares CRA enforcement responsibilities, did not issue a similar proposal. This lack of alignment among the three primary regulators typically leads to patchwork requirements for the banking industry. Previous, stricter CRA rules updated in 2023 were rescinded under President Donald Trump following legal challenges from the banking sector.