In a recent comment letter submitted to the agency, the Bank Policy Institute said it supports the rescission and the administration's move to reinstate the 1995 framework, saying it would remain true to the goals of the CRA while restoring regulatory certainty for firms. BPI argues that because the 2023 rule is subject to legal challenges and has not taken effect, banks continue to be examined under the 1995 rules.

"Reaffirming that the 1995 CRA regulations would continue to apply to banks would provide certainty that they may continue to serve their communities pursuant to those programs as they have for many years," BPI general counsel Paige Pidano Paridon wrote in the letter. "Furthermore, clarifying that banks need not allocate resources to comply with the 2023 rule may allow banks to deploy those resources toward meeting the credit needs of their communities, thereby furthering the goals of the CRA."

Alongside banks, community groups, housing agency advocates and CRA experts weighed in on federal banking agencies' plan during the public comment period over the last month. The Federal Reserve, Office of the Comptroller of the Currency and Federal Deposit Insurance Corporation announced in March that they would work to repeal the final rule and invited public comment on their proposal to rescind the rule and replace it with the prior implementation rules, which were first finalized in 1995.

Congress passed the CRA in 1977 as a way to address de facto lending discrimination against communities of color. The act requires that banks be graded on how equitably they are lending to low- and moderate-income customers and neighborhoods in their service areas, typically determined by where they have branches and deposit-taking automated teller machines. Banks need to receive a satisfactory mark in order to complete M&A transactions.

The federal banking regulators have at times updated their implementation rules for the CRA, most recently in 1995. But since that time both banks and community development advocates have raised concerns with the way the rules were written.

Community groups argued that the rules are ineffective in driving investment and services into marginalized communities, and further that the CRA assessment areas are needlessly tied to a bank's branch network at a time when most banking activity happens online. Banks, meanwhile, have long held that there is an insufficient framework for them to know whether an investment will or will not obtain CRA credit toward their examinations.

Former Comptroller of the Currency Joseph Otting sought to revise the 1995 CRA rules during the first Trump administration, ultimately issuing a proposal in May 2020 without the support of the Fed or FDIC. That proposal included a list of pre-approved lending activities that banks could engage in and obtain CRA credit, a major concession to the banking industry. But the proposal lacked broad support from community advocates, and regulators under the Biden administration started over.

The 2023 overhaul developed under the prior administration included expanding assessment areas to account for digital deposits and loans, clarifying eligible community development activities and introducing more rigorous evaluations for large banks. The rule was scheduled to go into effect next year.

But soon after the 2023 rule was passed, a cohort of trade groups — including the American Bankers Association, Independent Community Bankers of America, the U.S. Chamber of Commerce, the Texas Bankers Association and the Independent Bankers Association of Texas — filed a lawsuit to block the final rules on the grounds that the inclusion of digital deposits in banks' assessment areas is unsupported by the CRA statute.

In a comment letter submitted to the agencies, longtime CRA expert Ken Thomas argued against what he says were divisive policy approaches that both the Biden and first Trump administrations took toward CRA enforcement and reform.

Thomas said that while the 1995 CRA rules "worked fine," the Trump administration unnecessarily pushed forward a reform package without sufficient political consensus to establish an enduring reform — driven, according to Thomas, by Otting's experience as CEO of defunct bank OneWest during the 2008 financial crisis. That reform effort, Thomas said, opened a Pandora's box that ultimately spurred the Biden administration to issue what he says was an overly complex and burdensome revised rule.

"President Trump … brought in bankers to run the Treasury Department and its OCC," Thomas said, referring to Otting and former Treasury Secretary Steven Mnuchin, who founded OneWest. "Instead of addressing [money laundering], the number one costliest compliance regulation, they decided to overhaul CRA, far down the list at number six, because their previous bank, One West, had serious community group CRA problems," Thomas said. "Everyone agreed CRA should be updated to address the increasing impact of branchless banks."

While there was widespread agreement about the need to update the anti-redlining statute's implementing regulations to account for online banking, Thomas says the Biden Fed went too far in the other direction, imposing needlessly burdensome and complex standards without solving the real problem with outdated CRA rules: branchless banks extracting deposits online but not reinvesting in those same communities

"Modernization of the … CRA simply meant updating or tuning it up to reflect the fact that credit card, fintech, internet and other branchless banks are weblining our big cities by at least $40 billion annually," Thomas said. "Both the Trump CRA and especially the Biden CRA abandoned the clarity and fairness of the 1995 [rules], injecting unnecessary complexity and political ideology into what had been a nonpartisan practical compliance framework to prevent redlining."

With the prospect of another CRA revitalization effort uncertain, advocates for communities called on the agencies to reject the reverting to the 1995-era rule, saying the proposal would preserve a branch-based model that no longer reflects modern banking, leaving major blind spots in oversight.

Jesse Van Tol, president and CEO of the National Community Reinvestment Coalition, said in his comments that the 2023 rule created retail lending-based assessment areas for large banks that do more than 20% of their lending outside of branch networks, as well as a nationwide evaluation outside of assessment areas for all large and midsized banks that did the majority of loans outside of local branch networks.

"For the CRA to stay relevant it must account for how banks offer loans and services, which for an increasing number of institutions is outside of branch networks," NCRC's comment letter states. "This expansion of assessment areas would likely result in more lending to borrowers with [low-and-moderate income] and in LMI communities."

In the NCRC letter — in which the group is joined by 113 other community-oriented groups, including the NAACP, Rise Economy and Beneficial State Bank — the groups stress that the 1995 rules fail to capture how banks operate today, lack transparency in ratings and deprive regulators and the public of critical data. In their view, rescinding the 2023 rule would worsen systemic inequality, as lending can be a major driver of homeownership, key for generational wealth in the U.S.

"The 1995 framework 'relies on examiner discretion to draw a conclusion about a bank's level of lending' to determine whether a bank's lending is satisfactory or outstanding, and which show need for improvement or substantial noncompliance with the CRA's requirements that institutions meet the credit needs of the entire community," NCRC writes. "This discretionary approach has resulted in 98% of banks receiving at least satisfactory ratings since the 1995 framework began … [and] has not been affected by [banks'] significant decline in mortgage lending to borrowers with LMI and LMI communities."

Other groups' comments called for updates, even as they supported repealing the 2023 rule. Both the Mortgage Bankers Association and the National Council of State Housing Agencies said maintaining one narrow aspect of the 2023 rule — a pre-approved list of activities eligible for CRA credit — would be beneficial to lenders.

"While we strongly support reestablishing the 1995 CRA framework, we ask the agencies to consider including in the final rule language from the 2023 CRA rule that provides more details on which affordable housing activities would be eligible for CRA credit," NCSHA wrote. "This language gives clarity to banks without adding to their regulatory burden and offers a strong incentive for banks to engage in affordable housing financing and investments at a time when the nation faces an affordable housing crisis."

MBA, like other bank groups, said the 2023 rule and later litigation had created too much uncertainty, confusing stakeholders as to what requirements apply. MBA says it supports the move to revert to the old standards, but asked for some clarity on which activities are eligible for CRA credit.

"MBA agrees with the Agencies that a rescission of the 2023 Final Rule is appropriate, and we support the included provisions that provide much-needed clarity for banks," MBA wrote. "One such provision is the requirement that the Agencies periodically publish an illustrative list of CRA-qualifying Community Development activities and provide a process for banks to obtain pre-approval for Community Development activities that are not on the list."