UPDATE 1-U.S. banking regulator to rework recently updated fair lending rule

(Adds detail and context)

By Pete Schroeder

WASHINGTON, May 18 (Reuters) - A leading U.S. banking regulator announced Tuesday it was reconsidering a recently updated rule on fair lending standards, setting aside an effort finalized under the Trump administration.

The Office of the Comptroller of the Currency said it was revisiting a rule update completed in 2020 around the Community Reinvestment Act, a 1977 community lending law that requires banks to show how they are supporting lower-income communities.

The agency added that banks no longer had to update their systems to comply with the 2020 modifications, and it was also shelving proposed rules related to implementing the rewrite.

The move effectively acknowledges that the OCC is abandoning earlier efforts to update the rules single-handedly. Under former chief Joseph Otting, a Republican, the OCC pushed forward to update the rules, finalizing the new requirements in 2020 even as two other banking regulators that share responsibility for enforcing the law failed to do so.

The Federal Deposit Insurance Corporation and Federal Reserve jointly share CRA authority with the OCC, but both agencies have yet to complete an update to rules around the law, which were last changed in 1995.

The previous OCC effort was aimed at giving banks more clarity and flexibility in terms of what activities they could do to earn a passing grade with regulators. But some community groups and Democrats cautioned it could allow banks to do less to support lower-income communities while staying in regulators' good graces. (Reporting by Pete Schroeder; Editing by Chizu Nomiyama and Andrea Ricci)