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The Federal Reserve, Federal Deposit Insurance Corp. (FDIC), and Office of the Comptroller of the Currency have recently issued an update to the Community Reinvestment Act (CRA), a law enacted in 1977 to combat redlining practices. This marks the first significant update to the law in nearly three decades.

The new changes, set to take effect in January 2026, will reshape how financial institutions (FIs) engage with online banking and aim to address the racial homeownership gap by requiring FIs to increase lending in low- and moderate-income communities.

One of the key alterations is the expansion of the geographic focus of lenders’ responsibilities. FIs will not only be accountable for their physical branches but also for areas where they have a concentration of mortgage and small-business loans. This update aligns the CRA with modern online banking practices and introduces peer and demographic data benchmarks.

The final rule also introduces changes to the assessment of large banks’ retail lending operations and increases reporting requirements, with the specific requirements varying depending on the size of the FI and its online service offerings.

The aim of these updates is to simplify compliance and make it easier for FIs to achieve higher grades under the CRA grading system. FIs are encouraged to extend loans and services to low-income communities where they have a concentration of online lending activity. Collaborating with regulators to identify activities that can earn credit under the CRA grading system is also highlighted as a means of improving grades.

While the revised rule has garnered mixed reactions, with some FIs considering litigation, there are potential benefits for banks that actively address the racial homeownership gap. By extending loans to communities where their online banking activities are concentrated, banks not only meet regulatory expectations but also tap into potentially underserved markets. This inclusivity-focused approach may lead to the acquisition of new customers and long-term growth opportunities.

Definitions:

• Community Reinvestment Act (CRA): An anti-redlining law enacted in 1977 to ensure that financial institutions meet the credit needs of all individuals, including low- and moderate-income neighborhoods.
• Redlining: The practice of denying or limiting financial services to certain areas or communities based on their racial or socioeconomic characteristics.
• Financial Institutions (FIs): Organizations that provide financial services to individuals, businesses, and governments. This includes banks, credit unions, and other entities involved in banking activities.
• Racial homeownership gap: The disparity in homeownership rates between different racial or ethnic groups, often influenced by economic factors and historical barriers.

Sources:

– Article: “Federal regulators unveil first changes to anti-redlining law in nearly 30 years” (The Hill)

– Community Reinvestment Act (CRA) FAQs (Federal Reserve)

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