Since the beginning of 2022, we've noticed an increasing number of community banks being pressured to expand their Assessment Areas and to annex nearby urban areas. There have been too many examples that we have seen for this to simply be a coincidence.

The phenomenon appears to be emanating from a much more aggressive policy mandate issued by regulatory leaders in Washington DC. In fact, on October 22, 2021, the CFPB and the DOJ announced a new initiative called the "Combatting Redlining Initiative"

In their Press Release, the DOJ states, "redlining is not a problem of a bygone era but a practice that remains pervasive in the lending industry today." The DOJ then goes on to say that the initiative involves several actions including "Strengthen(ing) our partnership with financial regulatory agencies to ensure the identification and referrals of fair lending violations to the Department of Justice."

While the DOJ has prosecuted several prominent cases involving "statistically significant" aberrations of lenders failing to lend in majority-minority areas, the examples we have observed to date have not involved statistically significant underperformance. Rather they appear simply to involve regulator pressure on community banks whose assessment areas are near, but outside of major urban areas. In every case, we have observed community banks have not surrounded and avoided urban areas. They simply have Assessment Areas that abut a small part of an urban area. This suggests much more aggressive enforcement than the traditional "donut hole" and "croissant" approach that has been the basis for redlining accusations in the past. 

If you have an Assessment Area that is contiguous with a major urban area you may want to be prepared for possible redlining questions from your regulator. We strongly suggest you review your AA delineation and develop a written explanation for the basis of the AA's configuration. Always express your AA considerations in positive terms, such as "based on the practical service area of our branch network" and "based on the political subdivisions of  . . .".