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FOS Blog

28 Nov



There was a time when all we needed to worry about for CRA (Community Reinvestment Act) compliance was defining the Bank’s Assessment Area – the geographic area by which the bank will be evaluated for meeting the credit needs of its community.  But in today’s environment, there’s even more chatter about REMA (Reasonably Expected Market Area).  What’s happened?  What’s the difference?

In March of 2017, the FDIC provided information in a banker call – . Yes, an institution must define its assessment area (AA) using geographies in its MSA and contiguous political subdivisions.  Can it define its AA using, say an entire county, even though it only lends in a portion of the county?  Yes, so long as that portion of the county does not reflect illegal discrimination or arbitrarily exclude low- and moderate-income geographies.

The REMA term comes into play with Fair Lending Exams.  The FFIEC Interagency Fair Lending Exam Procedures (pg 39/49) call upon the examiner to identify additional areas that are of a racial or national origin minority character.  The procedure adds this note:

The CRA assessment area can be a convenient unit for redlining analysis because information about it typically already is in hand. However, the CRA assessment area may be too limited. The redlining analysis focuses on the institution’s decisions about how much access to credit to provide to different geographical areas. The areas for which those decisions can best be compared are areas where the institution actually marketed and provided credit and where it could reasonably be expected to have marketed and provided credit. Some of those areas might be beyond or otherwise different from the CRA assessment area.

According to an ABA Banking Journal Article , they cited, “While the concept of REMA is not new, the focus on REMA as an additional component of a fair lending redlining risk assessment and analysis may be new for some institutions. As noted in the exam procedures, a REMA is the area within which the institution actually marketed and provided credit, and where it could reasonably be expected to have marketed and provided credit. Therefore, a REMA might extend beyond or be otherwise different from a bank’s CRA assessment area.”

So what’s the gist of all this?  Yes, you have a defined Assessment Area by which you want to be evaluated for CRA purposes.  But you probably also have a larger REMA, an area where you are marketing and lending with the expectation of expanding your branch network and services.  Perhaps you use certain census tracts within a county for your Assessment Area but your marketing and lending reaches into the entire county.  It’s important to know the difference and to be prepared to answer your examiner’s questions about REMA.  This means developing evaluations about your lending patterns (mapping applications and originations), the reach of your marketing efforts (newspaper, magazines, etc.), whether any communities are expressly excluded (and why – geographic delineations?), and most importantly, whether your branching aligns with those efforts. Again, according to the ABA article, “Lenders should be proactive in identifying responsible lending opportunities that exist in predominantly minority neighborhoods within their lending areas, as redlining has now emerged as the top fair lending risk.”

Article compiled by Evelyn Dehmey, for additional information please visit our contact us page

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