Banks Face Shake-Up of Low-Income Lending Rules
WASHINGTON—Top U.S. banking regulators have been struggling for more than five years to update anti-redlining rules aimed at making banks lend more in lower-income communities. On Tuesday, they plan to complete a revamp of them for the era of online banking.
The 1977 Community Reinvestment Act sought to end banks’ historical practice of denying or limiting financial services in minority neighborhoods. The current rules—which are nearly 30 years old—generally require banks to serve everyone in the communities surrounding their branches, including lower-income people. Regulators say those requirements are outdated in a world in which much financial activity happens over the Internet and with mobile phones, so they are updating them to focus more on where banks do business, rather than their physical locations.
“The final rule takes a critical step forward in modernizing the CRA regulations," Michael Barr, the Federal Reserve’s vice chair for banking supervision, said in a statement. Banks said a 2022 proposed version of the new rules would have made it too challenging to get the highest rating when regulators assess banks for their compliance with the requirements, potentially leading firms to pull back on their investments in low-income communities. Industry lawyers have compared the dynamic to a professor telling a class that nobody will likely get a perfect test score, leading students to try less to do well in class.
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