The Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation are shielding more banks from anti-redlining oversight, citing the burden the assessment places on smaller institutions. They are gutting the Community Reinvestment Act so banks can redline with impunity.
The Community Reinvestment Act is a 1977 civil-rights remedy for documented redlining — the systematic denial of credit to low- and moderate-income neighborhoods. The law requires federal regulators to assess how well banks serve those communities, and it has been the primary federal mechanism tying a bank’s obligation to the communities where it takes deposits. On Friday the OCC and FDIC jointly proposed the first major rewrite of the CRA’s implementing regulations in nearly three decades, codified at 12 C.F.R. §25. Among the headline changes is a reduction in the number of banks required to comply fully with the law.
That language sounds reasonable until you read the rule for what it actually does. The current CRA evaluation framework scores banks on a combination of lending, investment, and service tests. Service includes branch availability and deposit collection from the assessment area — in plain English, whether the bank actually has a door the community can walk through. The proposed revisions would dramatically reduce the weight examiners give to branches and deposits, shifting the emphasis overwhelmingly toward lending alone.
The mechanism matters more than the magnitude of the reduction. If the finalized rule adopts the proposed emphasis shift without a local-presence requirement, a bank could originate a mortgage to a borrower in a low-income census tract from a call center three states away. Under the proposed lending-dominant framework, that loan counts as service to the community. Under the current framework, the same loan would be scored alongside — and partially offset by — the absence of any branch the community can walk into. The branch test was not anachronistic. It was the only metric that measured whether a bank was actually present, not merely lending into a ZIP code. The proposal’s own logic assumes lending data captures community service. But lending data captures where money goes, not where the bank is. A bank can satisfy a lending metric while closing every branch in a majority-minority census tract. The modernization framework has no mechanism to detect that outcome.
This is the third time in seven years the CRA’s implementing framework has been weakened in the direction of lender convenience. Section 401 of the Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018 raised the asset threshold for “small bank” status from approximately $1 billion to roughly $2 billion after inflation adjustments, exempting hundreds of institutions from rigorous CRA examinations. The 2020 interagency CRA rulemaking — finalized by the OCC in 2020 while the FDIC declined to join, then rescinded by the OCC in December 2021 before reaching full multi-agency implementation — never took effect. The current proposal continues the trajectory: smaller coverage, fewer obligations, and now, for the first time, the severe downgrading of the physical-presence metric that gave the law whatever teeth it still retained.
The metric shift is a genuine improvement, though not a clean one. Under the old framework, a bank could score well by maintaining a branch in a low-income neighborhood while routing its lending elsewhere. Measuring what a bank actually lends in the communities it serves is a tighter instrument than counting buildings. The lending metric could be gamed — banks might concentrate lending in the most creditworthy pockets of a qualifying geography and still post compliant numbers — but it is structurally tighter than counting branches.
The compliance narrowing is the problem. Reducing the number of banks subject to full CRA evaluation is not a better assessment — it is a narrower one. The metric could be the tightest instrument in the regulatory toolkit and it would still produce less coverage if fewer banks are held to it. This is the same argument the financial lobby deployed to pass S. 2155 in 2018, which raised prudential-supervision thresholds sold as community-bank relief while clearing institutions with hundreds of billions in assets from enhanced oversight. The community-bank-as-shield pattern is well documented across the financial-regulatory landscape. The CRA was not designed to punish banks for being large. It was designed to remedy discrimination. Exempting more institutions from assessment does not change the discrimination. It narrows which banks are held accountable for it.
The Federal Reserve — the third prudential regulator with CRA authority — is not part of this proposal. Two agencies are moving without the third. The result is not a unified reform but a split regime in which banks supervised by the OCC and FDIC face one set of rules while Fed-supervised banks remain under the old framework — or under no new framework at all, depending on whether the Fed follows or abstains. The absence is not incidental to the compliance narrowing. It is the compliance narrowing, in institutional form.
The banking industry is fighting other legislative threats right now — including an ad campaign warning that a stablecoin bill would drain credit from rural communities — while regulators hand them the gift of a lifetime. The CRA overhaul will be presented as a technical update, a calibration of an aging framework. It is not.
A bank that collects deposits from a community and lends the money elsewhere is doing what the original 1977 statute was written to stop. The proposed rule, if finalized, permits exactly that practice, without even the modest regulatory cost of maintaining a branch the community can enter. That is not modernization. That is retreat. That is redlining by another name. The regulators have proposed to improve the instrument and narrow its reach in the same rulemaking. That is not reform. That is the regulatory system operating as designed — and the design, for an agency funded by assessments on the banks it examines, is to protect the regulated.