Focus on Counties, not Towns, to Avoid Redlining Allegations

Article by: Ben Giumarra, Spillane Associates, Inc.

A significant shift in policy that you should be aware of if your institution is subject to Consumer Reinvestment Act requirements. Mortgage companies skip to the cartoon!

How do you draw an Assessment Area? Various factors should shape your Assessment Area – but two in particular are being given greater importance: the existence of County lines and Low-to-Moderate Income geographies. Don’t get caught off guard in your next CRA review.


CRA requirements require that an Assessment Area “consist generally of … one or more contiguous political subdivisions, such as counties, cities, or towns; and [i]nclude the geographies in which the bank has its main office, its branches, and its deposit-taking RSFs, as well as the surrounding geographies in which the bank has originated or purchased a substantial portion of its loans …” 

Let’s go through the How-To of drawing an Assessment Area (AA), and stop to focus on these two important items. The following are the factors that should affect what your AA looks like:

Physical Locations

Obviously, branches and LPOs are starting points when you’re drawing an AA. If you have a physical presence in a particular area, that makes it more likely the AA should include that area.

Lending & Other Activity 

Is there a town or other area where you do a lot of loans that is just outside your current AA? This is a relevant factor in considering expanding.

Political Subdivisions

So here is one of the biggest recent changes. Despite language in teh CRA rules (read above) referencing towns, regulators are pushing a county-focused review … making other factors less important, such as individual towns or other items like geography. So your starting point should be to include an entire county, rather than just an entire town. 

Regarding towns within the same county, expect regulators to ask why you’re not including all towns within the same county.

Example: Assume there are 4 towns in one county. Your assessment area includes three  of the towns. You have branches in those three towns, and the 4th town is isolated from the other three by a mountain range serving as a natural border. But the 4th town happens to include low-to-moderate income geographies. In the past, you would have been less likely to face scrutiny that today, because the regulatory approach now gives more importance to the county, than the individual towns.

Natural Borders & Geography

Does your AA run along a river, creating a natural border? Or does use a mountain range as a border? Given that such a “natural border” may affect branch traffic and other factors, this was traditionally a legitimate factor in drawing AA.

Similarly, is your AA an irregular shape, twisting around without regard. Maybe your AA cuts off mid-town and mid-county, but forms a perfect circle. While it wouldn’t be the best argument, it is a relevant point.

But remember – these factors are being seen as less relevant than the county-focused approached being pushed now.

Discriminatory Factors

When drawing the AA, you have to assess the redlining risk – the risk that it appears you’re avoiding certain areas. This is the second biggest change that’s occurring right now – the focus on majority-minority census tracts. Other factors – while all relevant (as described above) – are being overriden by this factor.

Example: Your assessment area might stop short of a majority-minority census tract. Perhaps it’s a different town (or even county) and divided by a mountain range. While in the past you would have received no criticism for not including it, you might very well today.

See the Klein Bank action for a prime example of this – summary here.

I appreciate the counterarguments and complications that arise from increasing the importance of these two factors … I’m not necessarily endorsing the approach. But I do know you should be prepared if (a) your AA does not include whole counties and/or (b) your AA stops short of including a nearby majority-minority census tract.

In Other News

  • The biggest aFederal Regulators helping us out with an announcement to institutions on the topic of Appraiser availability? Read here. Interesting … thoughts?
  • Ouch. $1.5 million fine from the Fed. Reserve against a Geogia bank who admitted to a pattern or practice of Flood insurance violations.
  • Good reminder that “redlining” can be a little more nuanced. Consider this quote from FDIC examiner from a speech on March 2017:
  • Also redlining is not the total avoidance of an area. It includes underserving majority minority areas. Underserving majority minority areas may be indicated in many ways such as through overt statements or a lack of effort to solicit applications. It can also include providing inferior facilities such as having limited hours and services as compared to the bank’s branch facilities, hours, and services in non-minority areas.

On My Mind …

An excerpt from Brett King’s book Bank 3.0:

As we become more used to technology and innovation, it is taking us less time to adopt these technologies in our lives … Simpy put: if you aren’t introducing innovations into the customer experience at the same rate at which customers are adopting these new technologies, you are at considerable disadvantage …. Justifying your slow innovation because you are “the Bank,” “we’re a heavily regulated industry,” or your legacy system/processes won’t allow it just doesn’t cut it anymore. 

“This 55m [iPads sold to-date] is something no one would have guess. Including us. To put it in context, it took us 22 years to sell 55 million Macs. It took us about 5 years to sell 22 million iPods, and it took us about 3 years to sell that many iPhones. And so, this thing is, as you said, it’s on a trajectory that’s off the charts.”

– Tim Cook (2012)


Thank you to Ben Giumarra, Spillane Consulting Associates, Inc., a member of our Education Committee, who with the support of other experts at SCA have put together this newsletter.


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