The banking world is currently in the middle of a massive "U-turn." If you've been following the drama surrounding the Community Reinvestment Act (CRA) or the Equal Credit Opportunity Act (ECOA), you know that the rules of the road are being rewritten—or, more accurately, erased. Basically, the aggressive "fair lending" push we saw a couple of years ago is hitting a brick wall.
The news that U.S. bank regulators to ditch updated fair lending rules isn't just a rumor anymore; it’s a full-blown administrative shift. Agencies like the Federal Reserve, the FDIC, and the OCC have signaled they are rescinding the 2023 modernization of the CRA. They're going back to the 1995 standards. Why? Because the 2023 version was essentially buried in lawsuits and red tape.
Honestly, it's a bit of a mess. Banks were preparing for a new era of data collection and geographical testing. Now, they're being told to just... stop.
Why U.S. Bank Regulators To Ditch Updated Fair Lending Rules Now
The primary driver here is a mix of legal pressure and a total shift in regulatory philosophy under the second Trump administration. Back in 2023, the Biden-era regulators pushed through a 1,500-page update to the CRA. It was the first major overhaul since the mid-90s. It was designed to catch "digital redlining"—the idea that banks shouldn't just be judged on where their physical branches are, but where they actually do business online.
Banks hated it. Or, at least, their trade groups did. They sued, claiming the regulators overstepped their authority. A Texas judge agreed and put a stay on the rules.
Fast forward to January 2026. The new leadership at the OCC and the CFPB is taking an axe to these "disparate impact" theories. On August 7, 2025, President Trump issued an Executive Order titled "Guaranteeing Fair Banking for All Americans." That order basically told regulators to stop looking for "unintentional" bias. If you can't prove a bank meant to discriminate, the government is increasingly being told to look the other way.
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The Death of Disparate Impact
For decades, regulators used a tool called "disparate impact." It allowed them to fine banks if their lending data showed that certain groups were getting rejected more often, even if the bank’s policy seemed neutral on paper.
- The Old Way: If your algorithm rejects 80% of minority applicants but only 10% of white applicants, you’re in trouble.
- The New Way: Unless an examiner finds an email saying "don't lend to these people," it's becoming much harder to bring a case.
The OCC has already stopped using this theory in its exams as of late 2025. The CFPB followed suit, proposing to strip disparate impact from the ECOA entirely. This is a seismic shift for anyone working in bank compliance. You've gone from "over-preparing for every possible statistical anomaly" to "just make sure you aren't being overtly biased."
The Impact on Community Reinvestment (CRA)
The CRA is the law that forces banks to lend in the neighborhoods where they take deposits. The 2023 update was supposed to make this "fairer" by including online-only banks. But as of this month, those rules are being officially abandoned in favor of the 1995 framework.
Regulators like the FDIC and the Fed announced they’d rather have "regulatory certainty" than a prolonged legal fight. So, they’re reverting to the old rules.
What does this mean for your local neighborhood? It depends on who you ask. Advocates like Nikitra Bailey from the National Fair Housing Alliance argue this rollback will widen the wealth gap. On the flip side, bank CEOs are breathing a sigh of relief. They’ve been complaining that the 2023 rules were "embarrassingly complicated"—a phrase actually used by Treasury Secretary Scott Bessent recently.
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Big Banks vs. Small Banks
Interestingly, the regulators are also raising the "asset thresholds." Starting January 1, 2026:
- Small Banks are now defined as those with less than $1.649 billion in assets.
- Intermediate Small Banks are those between $412 million and $1.649 billion.
This isn't just a boring number change. It means fewer banks have to deal with the most grueling parts of the fair lending exams. It’s a "regulatory relief" package disguised as a technical update.
What This Means for Borrowers
If you're looking for a mortgage or a small business loan in 2026, the landscape is shifting. With the "disparate impact" guardrails coming down, banks might feel more comfortable using complex AI models to determine creditworthiness.
The downside? If those AI models have "baked-in" biases from old data, there’s no longer a federal watchdog actively looking for those patterns. The focus has shifted from "outcomes" to "intent."
However, there is a silver lining for some. The new administration is very focused on "debanking." They’ve directed the OCC to make sure banks aren't closing accounts for political or religious reasons. So, while racial and gender-based protections are being narrowed, "viewpoint" protections are being expanded.
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The State-Level Wildcard
Don't think the fight is over just because Washington is backing off. Blue states are already gearing up to fill the void. New York, California, and Illinois have their own fair lending laws.
If the feds won't use disparate impact theory, state Attorneys General almost certainly will. We’re likely heading toward a fractured system where a bank has to follow one set of rules in Manhattan and a completely different set in Miami. It’s a headache for compliance officers, but it’s the reality of 2026.
Actionable Steps for Financial Institutions
If you're running a bank or a fintech, you can't just delete your compliance department. Here’s how to navigate this:
- Don't Toss the Data: Even if the feds aren't looking at disparate impact, private litigants and state AGs still can. Keep your data clean.
- Watch the "Debanking" Rules: Ensure your account closure policies are "viewpoint-neutral." The OCC is actively looking for "politically motivated" restrictions right now.
- Audit Your AI: Just because the regulatory heat is down doesn't mean "black box" algorithms are safe. If an algorithm is accidentally redlining, it's still a massive reputational risk.
- Simplify Your CRA Strategy: Go back to the 1995 basics. Focus on your physical "facility-based" assessment areas, as the "retail lending test" areas from the 2023 rule are likely dead.
The era of "modernized" fair lending rules turned out to be a very short chapter in banking history. We're back to the old-school way of doing things, at least for the foreseeable future.
To keep ahead of the curve, you should begin reviewing your 2026 exam schedule under the reinstated 1995 framework and ensure your "Public File" is updated to meet those older, yet now current, requirements.