Big banks face enhanced regulations on redlining

investmentnews.com:

Top US banking regulators have updated decades-old rules that are meant to tackle redlining and boost lending to lower-income areas. 

Under Tuesday’s plan, the landmark 1977 Community Reinvestment Act will for the first time cover online and mobile banking services. That means the grades that regulators give firms for lending to low- and moderate-income communities won’t be based just on the locations of physical branches. The overhaul will also stiffen other criteria for big lenders. 

The Federal Reserve, Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency on Tuesday approved the changes.

“The rule maintains a focus on evaluating bank performance in areas where banks have deposit-taking facilities, but also enables evaluation of retail lending and community development activities outside of branch networks,” Michael Barr, the Fed’s vice chair for supervision, said in a statement. He added that the changes will clarify how the rules apply and make them more consistent.

Since its introduction last year, the effort has faced criticism from both industry and consumer advocates. Banking trade groups have argued the new criteria for rating lending could make it too hard to achieve a high score. Meanwhile, critics have said the changes didn’t go far enough. 

Dennis Kelleher, who leads the Washington-based Better Markets group that often advocates for tougher rules, said the CRA reforms are well-intentioned but unlikely to work.

“It will likely continue to miss classic cases of redlining and enable banks to continue getting high if not perfect CRA ratings while continuing to reduce lending to low- and moderate-income communities,” Kelleher said.

Bank watchdogs evaluate the way lenders service