Consumer Affairs: Delineation of Assessment Areas

August 1, 2017

The delineation of a bank's assessment area (AA) should be directed by the bank's board of directors and aligned with its strategic focus and the geographic area the bank is reasonably able to serve.  The AA is an integral component for regulators when conducting the Community Reinvestment Act (CRA) performance analysis and the fair lending review. Regulation BB, which implements CRA, defines an AA as geographic delineation that includes the geographies in which a bank has its main office, branches, and deposit-taking automatic teller machines, as well as the surrounding geographies in which a bank has originated or purchased a substantial portion of its loans.  Moreover, AAs must generally consist of one or more metropolitan statistical areas (MSAs) or metropolitan divisions or one or more contiguous political subdivisions, such as counties, cities, or towns.  Regulation BB also sets the following limitations on the delineation of an AA:

  • must consist only of whole geographies;
  • may not reflect illegal discrimination;
  • may not arbitrarily exclude low- or moderate-income geographies, taking into account the bank's size and financial condition; and,
  • may not extend substantially beyond an MSA boundary or beyond a state boundary unless the AA is located in a multistate MSA.

While these requirements have been in place for many years, the focus on AA delineations has been increasing.  Community groups have been actively filing CRA protest letters identifying weak lending performance with respect to low- or moderate-income (LMI) census tracts and/or alleging redlining and discrimination. These protest letters often reference AAs that exclude some or all LMI and/or minority areas.  In addition, governmental agencies, such as the U. S. Housing and Urban Development and the U.S. Department of Justice have conducted their own investigations outside of a bank's mandated examinations based on their analysis of publicly available data and/or allegations of redlining and discrimination. These agencies consider AA delineations in their analyses, often requiring banks to expand AAs to include majority-minority areas as part of conciliatory agreements and/or settlement agreements.  And, of course, regulators review AA delineations for compliance with Regulation BB requirements as part of their regularly scheduled supervisory activities. Examiners revise noncompliant AAs and evaluate lending patterns in LMI and minority areas on the revised AA.

Given the scrutiny on AA delineation and associated reputational risk, banks are expected to:

  • Document the rationale for the AA delineation, including justification for partial MSAs or counties, as well as demographics and lending activity within the delineated AA and excluded geographies, if applicable. Generally, an AA delineation should begin at the larger MSA or county level and be reduced only when the area is too large to serve or is inhibited by geographic barriers.
  • Periodically review your AA delineation to ensure the implications of demographic and economic changes are considered as well as changes to metropolitan area designations per the Office of Management and Budget Bulletins and income level designations per the Federal Financial Institutions Examination Council. Moreover, the AA delineation may be impacted by changes in the bank operations: branch expansions and closures; mergers and acquisitions; changes in product and service offerings as well as delivery channels; and, purchases of loan portfolios.
For additional information on assessment areas, please reference the 2014 Consumer Compliance Outlook article, "Understanding the Community Reinvestment Act's Assessment Area Requirements" and the CRA Questions and Answers (pages 183 - 188), which were revised in 2016. If you have additional questions, please reach out to your designated Consumer Affairs contact.