Financial regulators under the Trump administration have unveiled a proposed overhaul of the Community Reinvestment Act (CRA), arguing that the decades-old banking rule has been diverted from its original mission and turned into a mechanism that channels funds from financial institutions to advocacy organizations.

The Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) announced the proposed rule on Friday. The CRA was originally enacted in 1977 to combat "redlining"—a discriminatory practice in which banks refused to extend loans or provide depository services in low-income and minority neighborhoods. Under the existing framework, CRA performance ratings carry significant operational consequences: banks with poor assessments have historically faced difficulty securing regulatory approval for mergers, acquisitions, and branch expansions, making CRA compliance one of the most consequential evaluations a bank undergoes.

The proposal marks a sharp departure from the comprehensive CRA modernization finalized in October 2023, when the OCC, FDIC, and the Federal Reserve jointly approved the most sweeping update to the rules in decades. Notably, the Federal Reserve is not named among the agencies advancing the current proposal.

The proposed changes include provisions designed to sharpen the law's focus on lending activities and to ensure that community development grants and donations reach their intended beneficiaries rather than being redirected to unrelated endeavors. Critics have long argued that banks have satisfied regulatory CRA requirements in part by making contributions to advocacy groups.

Comptroller Jonathan Gould said in a post on X: "Under the Biden Administration, the Community Reinvestment Act became an onerous tax on community banks that failed to drive investment into the very regions they were meant to serve."

"Today's proposed reforms will help ensure the CRA is no longer used as a social credit score for banks, nor as a funding mechanism for activist NGO networks under the guise of community development," Gould wrote.

Republican lawmakers with oversight responsibilities on financial services panels welcomed the regulatory action.

Rep. Andy Barr (R-Ky.), a member of the House Financial Services Committee and chairman of its subcommittee on financial institutions, said: "For years, left-wing activist groups have weaponized the Community Reinvestment Act to pressure financial institutions far beyond Congress's original intent."

"Instead of expanding access to credit, the CRA has too often become a tool to limit access to capital. I welcome the Trump Administration's commonsense reforms to restore the law to its intended purpose and refocus it on lending and community investment," Barr added.

Sen. Katie Britt (R-Ala.), who serves on the Senate Banking Committee and chairs its subcommittee on housing and community development, said in a post on X that she welcomed the proposal to "restore a more practical" framework for the CRA.

"Community banks should be focused on expanding access to credit, supporting small businesses, and strengthening local communities, not navigating unnecessary regulatory burdens or subsidizing activist causes," Britt said.

Conservative activist Christopher Rufo described the proposed rule as a "big deal" and a "win for Scott Bessent" in a post on X, adding that the CRA "has been used as a mechanism for shaking down banks to fund left-wing activism."

Under the proposed rulemaking, the OCC and FDIC would ease regulatory burdens on banks with $10 billion or less in assets, providing them with more flexible supervision and exempting them from certain data collection, maintenance, and reporting requirements.

The rule would also narrow the scope of regulation to credit services—excluding deposit services—and streamline other requirements to enhance the clarity, transparency, and objectivity of CRA evaluations for banks of all sizes.

Gould added that the OCC will continue to implement the vision of President Donald Trump and Treasury Secretary Scott Bessent by "taking steps to reduce unnecessary regulation and propel economic growth on Main Street."