Trump to Use Anti-Redlining Law to Target ‘Activist’ Groups

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Trump administration banking regulators are aiming to use an anti-redlining law to steer funding away from “activist” community advocacy groups.<br>The Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. on Friday proposed changes to rules implementing the 1977 Community Reinvestment Act that they say will direct more lending in low- to middle-income communities by limiting grants that banks can give to community groups.<br>“The proposed rules announced today seek to increase the focus on lending and ensure that community development grants and donations reach the communities they are intended to benefit instead of being diverted to other activities or excessive operating costs,” the two agencies said in a statement.<br>The proposal, subject to a 60-day comment period once it hits the Federal Register, is intended to “modernize” the CRA, which was last fully revamped in 1995, according to the regulators. The CRA is meant to address historical redlining by requiring US regulators to grade banks for lending and investments in covered communities.<br>The Federal Reserve also has oversight responsibility for the CRA but isn’t involved with the current proposal.<br>An effort to update the CRA’s rules during the first Trump administration foundered in part because the OCC released a final rule without the FDIC and the Fed signing on. Comptroller of the Currency Jonathan Gould served as the OCC’s chief counsel during the first Trump administration.<br>Grade Changes<br>The proposal from the OCC and the FDIC would make significant changes to the way banks are graded for CRA compliance.<br>Among the biggest changes is a shift to focusing primarily on lending, in part by narrowing a test over retail banking services to prioritize credit activity and exclude deposits, the agencies said.<br>Banks that provide community development grants will be monitored to ensure the funds are “directly used for a plan, project, or initiative with community development as a primary purpose,” the agencies said in a summary of the proposal.<br>Regulatory officials told reporters they’re still developing a specific list of activities that would count for CRA credit. They declined to say whether projects focused on climate change, such as flood mitigation or the installation of solar panels, would qualify. The Trump administration has moved to eliminate many initiatives aimed at mitigating the effects of climate change.<br>The goal is to ensure money isn’t diverted to “activist causes or consumed by excessive operating costs,” the agencies said in their summary of the proposal. Large banks will be required to document that their grants and donations only go to organizations with operating costs capped at 15%.<br>Banks are measured for compliance with the CRA on a scale ranging from “outstanding” to “significant noncompliance.” A poor CRA score can result in regulators curtailing banks’ plans to merge or expand their branches.<br>Asset Thresholds<br>The OCC and the FDIC are also proposing to shrink the number of banks subject to the toughest CRA evaluations.<br>Currently, lenders with around $1.6 billion or less in total assets are considered intermediate banks for CRA purposes.<br>The proposed rule would to lift that threshold to $10 billion, potentially exempting more than 1,000 banks from data collection and reporting requirements mandated by the CRA.<br>The two agencies are also looking to boost the use of strategic plans outlining CRA goals that can be substituted for direct examinations and to provide clearer guidelines for when lending and investment activities outside of a specific geographic assessment area would receive credit.<br>Banks and other critics have long argued that the CRA’s focus on lending and investment around specific branches doesn’t adequately address digital and mobile banking activities.<br>A 2023 rule from the Fed, the FDIC, and the OCC sought to address that issue, but a federal judge in Texas blocked it. The OCC and the FDIC in early July dropped their appeal of that decision, while the Fed said it would keep its appeal alive until the Biden-era policy is fully rescinded.

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