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6 Common CRA Assessment Area Mistakes to Avoid

Mar 5, 2018 by Brian Arnesen

The Community Reinvestment Act (CRA) has been in place for over 40 years. Demographic shifts, bank mergers and the rise of online lending have caused challenges in meeting CRA performance standards.

Even if your bank is not required to report data under CRA, all banks are still required to perform within the standards outlined by the FFIEC. The only way to accurately measure your bank’s performance is to routinely analyze your lending data and compare your bank’s performance to your peers.

At a minimum, banks should analyze their lending data on an annual basis. Software such as CRA RELIEF and its associated Market Data & Instant Mapping modules, enables banks to run lending test reports that mirror the reports examiners run. This helps lenders evaluate assessment areas, while comparing their performance to the market.

One of the most important factors in a CRA exam is your assessment area. Your assessment area will dictate the performance standards you are measured against. Assessment areas can be optimized in a number of different ways, but there are 6 common mistakes you must avoid in order to pass your CRA exam and obtain a good rating.

Here are the 6 common CRA mistakes you must avoid:

1. Assessment area too big to service for your bank’s size

A bank in Los Angeles with only one branch should not choose the entire county as their assessment area. Loans are often concentrated near the branch location which in this case, would result in 95% of the census tracts in the county without lending. Examiners would view this as failure to lend throughout the assessment area and as a result of the demographics of the county, failure to lend to low to moderate-income tracts. You must always remember that the demographics of your assessment area drive the performance standards you are expected to meet.

large CRA assessment area
Map provided by Len Suzio of GeoDataVision LLC.


2. Assessment area too small to pass the AA Ratio Test

Examiners will not tolerate low assessment area ratios. Anything less than 50% of loans inside your assessment area is almost a guaranteed fail. You must have adequate lending inside your assessment area.

CRA Assessment Area Too Small
Map provided by Len Suzio of GeoDataVision LLC.


3. Unconnected census tracts

Having assessment areas that are not contiguous can lead to problems. This can often happen when updating from old census tracts to new census tracts. The error happens when a bank maintains old census tract identities and uses mapping software which fails to recognize the new census tracts and subdivides them. This can result in gaps appearing inside your assessment areas. Make sure you know what the latest census tract delineations are and what tracts are in your assessment area.

CRA Non-Contiguous Census Tracts
Map provided by Len Suzio of GeoDataVision LLC.


4. Arbitrary avoidance of low- or moderate-income tracts

This is a red flag for any examiner and is commonly referred to as redlining. Drawing boundary lines that appear to exclude low to moderate-income or minority tracts will lead to immediate accusations of redlining. These allegations can be very serious and even result in referrals to the Department of Justice.

Avoiding LMI Tracts
Map provided by Len Suzio of GeoDataVision LLC.


5. Overlapping MSA boundary

If your assessment area boundary extends substantially beyond the MSA and includes another MSA, this can result in overlapping boundaries. If you don’t have a branch in the second MSA you will have to adjust your assessment area and your lending in that MSA will be excluded.

CRA Overlapping MSA Boundary
Map provided by Len Suzio of GeoDataVision LLC.


6. Adding an area without knowing impact on performance expectations

This is the most common mistake banks make. This can result in redlining, lending gaps, poor AA ratio and an increase in the number of LMI tracts, which results in inflated lending test standards for LMI tracts and borrow penetration rates. Your bank should be lending in a way that reflects the low to moderate-income demographics of its assessment area.


While CRA has had only minor changes in the 40 years since it has been enacted, it continues to be a problem area for many banks. Remember to thoroughly analyze your performance and compare yourself to your peers using Market Data. By avoiding these common mistakes with your assessment area, your next CRA examination is sure to be “outstanding”.