U.S. Regulators Roll Back Fair Lending Rule Updates Amid Legal Pushback

U.S. bank regulators plan to revoke updated fair lending rules for banks following a legal dispute with the banking industry over the new framework. The prior set of requirements will be reinstated, aiming to enforce the Community Reinvestment Act, ensuring banks service their local communities.

In response to legal challenges from the banking industry, U.S. bank regulators have announced their intention to reverse a 2023 update to fair lending rules and revert to previous standards. The Federal Reserve, Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency have declared plans to reinstate past rules related to the Community Reinvestment Act (CRA), a 1977 law designed to ensure banks provide services to their local communities.

The updated rules aimed to modernize CRA requirements, reflecting the rise of online banking, and required banks to extend services to lower-income individuals beyond their traditional physical branches. Banking and business groups, however, filed legal challenges, arguing that the new rules exceeded regulatory authority, ultimately leading to a Texas judge's decision to block the enforcement a year ago.

Originally designed to combat redlining—a discriminatory practice where banks limit lending in certain areas, particularly those with minority populations—the CRA regulations play a vital role in assessing banks' overall performance. Banks with poor CRA ratings face significant restrictions, such as being barred from participating in mergers and acquisitions.

(With inputs from agencies.)