Federal bank regulators have released a proposal to rescind the Community Reinvestment Act (CRA) final rule that was issued in October 2023.
The FDIC, OCC and the Federal Reserve Board said they would replace it with the CRA regulations that were issued in 1995 and are now in place, with certain technical amendments.
Comments on the proposal are due on or before August 18, 2025.
"If adopted, the proposal would restore certainty in the CRA framework for stakeholders in light of pending litigation and limit regulatory burden on banks, while ensuring that banks continue to serve their communities," the agencies said, in a joint statement. The preamble to the proposal includes this more in-depth statement:
"The agencies believe that returning to the regulatory framework established by the 1995 CRA regulations is the most effective way to provide certainty regarding the applicable CRA requirements. Since the issuance of the preliminary injunction enjoining the 2023 CRA Final Rule, the agencies' observations are that not all stakeholders understand whether they should prepare to comply with the 2023 CRA Final Rule or even which regulatory framework is currently applicable. Proceeding with the litigation, particularly given its early stage, would maintain these uncertain circumstances for an indefinite period and would therefore be inconsistent with the objective of restoring certainty in the CRA regulatory framework."
The American Bankers Association, Independent Community Bankers of America, and U.S. Chamber of Commerce, along with state and municipal trade associations, had filed suit challenging the October 2023 rule in the U.S. District Court for the Northern District of Texas.
The plaintiffs requested a preliminary injunction and in March 2024 that was granted by the District Court. In April 2024, the agencies appealed the preliminary injunction to the Fifth Circuit, but in March 2025, with a new administration in place, the agencies filed an unopposed motion to stay the appeal. At the same time, the agencies said they would propose rescinding the rule.
Prior to the decision by the Federal Reserve Board, the Fed staff provided members of the board with a memo recommending rescission of the 2023 rule to restore certainty and to reduce the burden on banks.
"[T]he final rule, if fully implemented, would have raised the asset-size thresholds for small, intermediate, and large banks, to which categories CRA examinations are tailored, and revised the performance tests and other aspects of the 1995 CRA regulations," the staff said.
The staff noted that since the injunction was issued, not all stakeholders knew whether they should prepare to comply with the 2023 final rule or which regulatory framework is applicable.
The Fed staff said that under the 2023 rule, some banks would have additional regulatory requirements. In addition, the staff said that all banks would incur costs to ensure that their compliance with the rule.
In June of 2020, the OCC issued its own CRA rule, without the cooperation of the FDIC or the Fed. The OCC's rule itself was rescinded in December of 2021. Now it appears that the 2023 rule will also be rescinded.
Given the complexity of the 2023 rule, and the data-gathering burdens to which it would have subjected many institutions, the proposal to rescind will likely be cheered by financial institutions. Some form of CRA modernization is likely needed, however, because determining an institution's CRA assessment areas by looking at the locations of its branches and ATM's makes little sense today given the tools and technology that can be used to establish a banking relationship.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
