#1. Not Your Grandfather’s Redlining
Redlining is a holdover term from when red pens were used to outline low-income or high-minority neighborhoods because some bankers perceived them to be high-risk. Now, the focus of the Consumer Financial Protection Bureau [CFPB] goes beyond traditional banks offering standard lending products and applies to any financial institutions’ mortgage lending activity and additional lending products, including small business loans or automobile transactions, marketing tactics, and can utilize additional definitions of census tracts considered high-risk for redlining activity.
What most financial service providers may not realize is that actual assessed footprints may be much larger than previous assessments since assessments can now include location of services advertised, otherwise known as REMA.
A Reasonably Expected Marketing Area [REMA]
Examination are no longer just about quantitative data – the numbers that define who and where you are lending. It can now include an expanded definition of assessment area based on where lending services are marketed or should be marketed, which can make defining a REMA a bit tricky.
A REMA may be how your institution defines it, but it may also be defined differently by an examiner. In practice, you should determine a REMA based on the following guidelines:
- Map out the placement and potential reach of your marketing efforts
- Map out branch and ATM locations
- Combine assessment areas from recent mergers and acquisitions
- Determine potential gaps and strategies to close them
Don’t Wait To Do This: Start looking at your REMA now and review the entire footprint of each loan type provided.
#2. The New Tracts To Redlining: Expand Your Analysis
With the rapidly changing demographics of the US, Majority Hispanic census tracts are becoming increasingly important, and extends beyond income disparities. These new measures cover a larger scope but they are also more specific.
The additions include:
- Low to Moderate Income [LMI]
- Majority Minority Census Tracts [MMCT]
- NEW: Majority Black Census Tracts [MBCT]
- NEW: Majority Hispanic Census Tracts [MHCT]
- NEW: Majority Black & Hispanic Census Tracts [MBHCT]
#3. Marketing Campaigns Are Essential
Determining the location of marketing campaigns is critical in a REMA assessment, but so is being able to prove that each marketing campaign is reaching every potential qualified buyer within an identified market area.
Traditionally, institutions rely on tools to analyze HMDA and CRA lending data. In the digital landscape, it may seem easier than ever to provide insight into geographic reach and audience engagement, but there are additional factors to consider beyond the quantitative data.
Can English-only billboards located in predominantly Hispanic census tracts truly serve that community?
Anurag Agarwal, President, RiskExec
Consider how a marketing campaign actually reaches a potential buyer in the community it is distributed. Can English-only billboards located in predominantly Hispanic census tracts truly serve that community? While many institutions serving Hispanic applicants and borrowers are equipped to communicate in the same language, most of the applications and disclosures remain in English. English as a Second Language [ESL] options may not be revealed in a data analyses, but may be included in an examiner’s assessment. Marketing campaigns need to be built to accommodate individuals that reside in an identified market area.
Even with the tools available to report on digital impact, the larger challenge will be proving demographic and language comprehension and could include:
- Actual geographical reach
- Language delivery
- Gender, income, and race of intended audience
- Actual demographics of visitor traffic to a website
#4. Be Proactive: Don’t Wait for Year-End Review
When an analysis is completed at year-end, the opportunity to recover from potential risks is long gone. Review data each month or quarter. While you may have less data to work with earlier in the year, increasing frequency enables you to proactively adjust a campaign to mitigate future risk.
Prevent exposure for the majority of the year by watching for patterns that might reveal risks earlier on.
#5: Ignorance is Not Bliss
In the good old days, people operated by the “what I don’t know can’t hurt me” principle. Those days are over.
If one violation is uncovered, or a marketing campaign fell short, do something about it immediately. The CFPB responds kindly when steps are taken to understand the risks and to remedy any perceived violations.