Revised Tax Code Evokes Expected Reactions, Various Protests from Bowman
The Federal Reserve, Federal Deposit Insurance Corp., and Office of the Comptroller of the Currency have issued a final rule to update the Community Reinvestment Act (CRA) for the first time in nearly three decades. The updated regulation, which will go into effect on January 1, 2026, aims to promote economic justice and community reinvestment, but has faced criticism from some quarters.
Fed Governor Michelle Bowman objected to the rule on several points, characterizing it as "unnecessarily complex" and "overly prescriptive." Bowman expressed concerns that the new rule may create disincentives for banks to continue lending in certain areas, as large banks will now be required to include an entire county instead of a partial county as an assessment area. This, she asserted, could push some institutions to reduce lending, particularly community banks, due to the increased cost of compliance.
The rule changes bank size classifications, defining small banks as those with less than $600 million in assets, up from $376 million, and large banks as those with more than $2 billion. Large banks will be tested in four areas: retail lending, community development finance, retail services and products, and community development services. Retail lending and community development financing will carry equal weight for large banks in the new rule.
The latest final rule also takes into account banks' online presence and requires them to lend in lower-income communities where they have a concentration of mortgage and small-business loans. However, Bowman noted that the final rule contains no discussion or explanation for why currently satisfactory practices will no longer be satisfactory.
Despite these criticisms, Fed Governor Christopher Waller, another Republican, did not second Bowman’s dissent. Waller stated that the rule is an improvement in that it continues to support community reinvestment as required by law while providing more clarity to banks on the criteria needed to comply with the CRA.
The National Community Reinvestment Coalition called the rule a victory for economic justice but criticized it for failing to make the racial wealth equity goals of the law explicit. Mehrsa Baradaran, a law professor, echoed this sentiment, noting that the CRA has never been up to the task of addressing the problem of redlining effectively.
The Consumer Bankers Association and American Bankers Association have reacted cautiously to the rule, expressing concerns about potential compliance burdens and reconciliation with other regulatory changes. However, they also acknowledged that an update to the CRA was better than no update at all.
The current president of the Federal Reserve, who at least temporarily voted for the updated CRA regulation, is Jerome Powell. He has been serving as Chair since February 2018 and remains in office with his term expiring in May 2026.
In conclusion, the updated Community Reinvestment Act aims to promote economic justice and community reinvestment, but has faced criticism for its complexity and potential impact on lending. Despite these concerns, the rule represents a significant step forward in modernizing a law that has not been updated in nearly three decades.
