In a recent announcement, U.S. bank regulators revealed their plans to revoke a 2023 revision to fair lending regulations for banks and revert back to previous guidelines due to a legal dispute from the banking sector regarding the new framework.

The Federal Reserve, Federal Deposit Insurance Corporation, and Office of the Comptroller of the Currency issued a joint statement indicating their intention to propose the reinstatement of former regulations that enforce the Community Reinvestment Act, a law from 1977 that mandates banks to cater to local communities.

Originally designed to update CRA requirements and recognize the growth of online banking, the revised regulations aimed to compel banks to offer services to low-income individuals in regions beyond their physical branches, extending to a larger demographic of online users.

Last year, U.S. banking and business organizations filed a lawsuit against the regulators contesting the new regulations, claiming they went beyond regulatory authority and could impede lending activities. A judge in Texas halted the enforcement of the new rules a year ago.

CRA regulations, created to combat redlining—discriminatory practices where banks restrict or limit loans to specific regions or demographics, particularly minority groups—are fundamental to banks' overall regulatory performance. A low CRA rating places lenders in a restricted state, preventing them from engaging in mergers and other transactions.