By Katanga Johnson and Pete Schroeder
WASHINGTON (Reuters) - A federal regulator said on Tuesday it is seeking input on rewriting decades-old rules aimed at encouraging bank lending in low-income communities.
The move by the Office of the Comptroller of the Currency (OCC) to seek public comment is an initial step by regulators to rewrite the 1977 Community Reinvestment Act (CRA) rules, which banks say have become outdated since they were last updated in the 1990s.
The rules are aimed at preventing discriminatory lending and so-called redlining by requiring banks to extend mortgages and other types of credit to low-income communities where they take deposits.
Regulators regularly grade banks on their compliance, and lenders that do not make the grade face limits on their ability to expand through mergers, acquisitions or adding new branches until issues are addressed.
Banks say that the rules overlook technology that allows customers to apply for loans and transfer funds via a mobile app regardless of physical location or hour restrictions.
The Trump administration, which is looking across industries for places to trim regulations, has pushed for a more relaxed approach to the CRA rules.
The OCC shares responsibility for enforcing CRA rules with the Federal Deposit Insurance Corporation and Federal Reserve, which did not sign off on Tuesday's consultation.
But both agencies have expressed interest in rewriting the rules. The OCC plans to share responses with the other regulators after a 75-day open period for comment, it said on Tuesday.
Comptroller Joseph Otting, a former banker, has identified updating CRA regulations as a top priority, and the Treasury Department has similarly said bank regulators should look for ways to modernize the rules.
"Stakeholders of all kinds have spoken up, calling the current regulatory framework for the CRA outdated, complex, and cumbersome," Otting said in a statement on Tuesday.
The OCC is considering expanding the types of bank activity that would qualify under the rules and potentially broadening the geographic areas where a bank can do business and still comply with CRA, in a nod to the rise of digital banking.
"Current CRA rules make it harder for [community bankers] to serve their communities, which makes today's OCC action both timely and necessary," Rob Nichols, president of the American Bankers Association, said in a statement.
"The current framework is holding back investment in communities the law is intended to serve, while failing to account for significant innovations in the banking sector, including the opportunities presented by mobile technologies."
Consumer and fair-lending groups agree the rules could be modernized, but are wary of any changes that could lower standards and hurt minorities' fair access to credit.
(Reporting by Katanga Johnson and Pete Schroeder; Editing by Michelle Price and Meredith Mazzilli)
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