Important CRA & Redlining Update: It’s Time to Think About 2020

CRA  »  Important CRA & Redlining Update: It’s Time to Think About 2020

2020?  Yes, 2020.  With the bizarre nature of last year, it is easy to overlook some of the year’s significance.  One is that 2020 was a Decennial Census year, with the population of the U.S. recounted.  It is never too early to think about this as there will likely be changes that will affect those involved in, or responsible for, CRA and/or fair lending analytical work.

The FFIEC is now using the American Community Service (ACS) for information no longer collected with the Census.  The FFIEC policy indicates that data will be updated on a 5-year basis.  That means this data will also be changing soon as well.

The new Census and ACS will bring with it a number of key changes, and potentially (at some point) invalidate recent analysis, or for those in compliance management, key assumptions, presumptions, and measurements concerning an institution’s performance.

Why This Matters

This is true for (2) reasons: First, critical demographic measures will potentially change.  This is true at the market or assessment area level as well as at the census tract level.  Second, the actual configuration of the geographies (specifically census tracts) may change also.  Particularly in areas that have experienced a great deal of population change, census tracts can be realigned and reconfigured in the Decennial Census.

What This May Mean To You

We noted that with the release of the 2010 Census, many institutions were caught unaware of tract boundary changes and shifting demographics within their market areas.  A key point to remember is that tract compositions can change simply by different boundaries, even if the population in the area overall has not changed.  This means changes from a tract not being majority-minority to being majority-minority.  The opposite is also true.  It is often the case, however, that demographics can shift significantly.  This can affect the distribution of lending proportions by tract racial designations, as well as the appearance of the assessment area delineation with respect to critical geographies.

What Will Your Assessment Area Delineation Look Like With New Data?

Taking seriously the old adage “a picture is worth a 1,000 words” is a prudent step with regard to assessment area delineation.  Evaluating how assessment area boundaries are drawn in relation to critical geographies is an important self-evaluation step and one that will be used in the course of a regulatory examination.  This should be part of every institution’s assessment of redlining risk.  In other words, what areas are included, what areas are excluded, or the racial composition now may now be different than when it was first defined; and if so, how much does it change the “picture”.

It is further important to understand what the institution’s lending distributions are both inside and outside of the assessment area, by these same metrics.

Will There Be Changes With New Data?

It is vital to understand that the institution’s risk profile can change rather dramatically with demographic shifts and/or tract realignment.  It is not uncommon for new tracts to be created, for tracts to be removed, or tracts to be combined into other tracts.  This means that the “picture” of your assessment, in terms of how it is drawn relative to the racial composition of the area or lending in and outside of these areas, can literally change overnight.  This is in addition to the updates that will be done based on the ACS.  As indicated earlier, many lenders are often caught unaware as to how such changes can alter their redlining risk profile.

Don’t Be Trapped By Complacency

Redlining analyses typically involve comparisons of an institution’s lending data to peer data to assess performance.  One may assume that, if an area changes in terms of tract boundaries or demographic shifts, it should affect all lenders in proportion and should make little difference in terms of peer comparisons, thus, not creating an issue.  While there is some merit to this and it is a sensical observation, this is not always the case.

As an example, a bank may be located in a section of a large MSA and but has its business concentrated in a few areas via the proximity of their locations.  The distribution of their lending may not have changed at all with no significant shifts in demographics within the areas where they have their penetration.  Nothing has changed at all for them.

Now, consider other portions of this MSA where the majority of lenders have their lending concentrations.  Suppose a number of these tracts change from being majority-white to majority-minority, and their lending distributions have not changed or changed very little.

In this example, the result will be an increase in penetration in critical geographies for peers but with no corresponding increase for the institution.  Just based on the data changes, the institution would now be lagging peers, even though lending for them or the peer group had not changed at all.

What Can Be Done Now?

The first step has already been taken by reading this article – being aware.  Couple awareness with preparedness and begin to consider possible upcoming changes and their impact.

One possible indicator to look for is potential “transition tracts”.  These are tracts that are in areas where there are population changes, and tracts in the area may be close to the threshold in terms of their racial designation.  Such tracts in changing areas can easily “flip” from one designation to another.

Likewise, areas in which there has been significant population change are something to bear in mind, even if the demographic compositions seem not to have changed much.  These areas have the potential for tract realignments that can significantly change the compositions as well by the boundary changes.

Finally, it may go without saying but it should be stressed that the agencies expect institutions to keep up with changes and prepare and adjust accordingly.  It is never too early to begin planning.

How to cite this blog post (APA Style):
Premier Insights. (2021, February 25). Important CRA & Redlining Update: It’s Time to Think About 2020 [Blog post]. Retrieved from

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