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Appeal of Potential Fair Lending Violations of Law (Third Quarter 2011)


A community bank appealed the OCC's determination that it had reason to believe the bank engaged in redlining in violation of the Equal Credit Opportunity Act (ECOA) and the Fair Housing Act (FH Act). The bank’s appeal also denies that a referral to the U.S. Department of Justice was warranted.


The bank’s decision to appeal was based on the OCC's determination that:

  1. The bank's CRA assessment area was non-compliant with CRA regulations because it arbitrarily excluded low- and moderate-income geographies within the multi-state metropolitan statistical area (MMSA),
  2. The bank engaged in unlawful redlining by providing unequal access to credit to Black individuals in majority-Black census tracts in the MMSA, and
  3. The bank's marketing or outreach efforts were ineffective in reaching Black residents of the excluded geographies (excluded area).

The supervisory office (SO) stated, at the time of the Community Reinvestment Act (CRA) examination, the geographic shape of the bank's assessment area (AA) resembled a crescent as did the pattern of bank branches. As a result, the AA did not include the entire MMSA, divided political subdivisions, and excluded low- and moderate-income and majority Black census tracts. Additionally, the review of the bank’s Home Mortgage Disclosure Act (HMDA) data disclosed a substantial amount of loans were made in the excluded area to White borrowers. A review of the bank's marketing strategy revealed a broad-based advertising approach designed to reach the general public without specifically targeting any particular group or area.


The ombudsman conducted a comprehensive review of information submitted by the bank and the supervisory office. The ombudsman referred to 12 C.F.R. Part 25, 12 C.F.R. Part 202, 24 C.F.R. Part 100 and the Comptroller's "Fair Lending" and "CRA Examination Procedures" Handbooks as standards for determining compliance with the regulations. In addition, the "Fair Lending" handbook contains the April 15, 1994 Policy Statement on Discrimination in Lending, which provided guidance on what constitutes “reason to believe” for purposes of redlining and referral to the Department of Justice.

With respect to the bank's noncompliance with assessment area delineation regulations, the ombudsman agreed with the SO. Regulations require a bank's assessment area to include whole geographies (e.g., census tracts) and should generally include entire political subdivisions (e.g., counties or cities). If including an entire political subdivision would create an area that is larger than the institution can reasonably expect to serve, a bank may adjust its assessment area to include only portions of the political subdivision.

However, when making adjustments, institutions must not arbitrarily exclude low- or moderate-income geographies or set boundaries that reflect illegal discrimination. The ombudsman found the bank had excluded several portions of political subdivisions in close proximity to its delineated assessment area. These portions were comprised mainly of low- or moderate-income geographies.

With respect to the determination of unlawful redlining practices, the ombudsman found the SO conclusion well-supported. For the period under review, the volume of the bank’s Home Mortgage Disclosure Act (HMDA)-reportable loans originated in the excluded area represented a substantial percentage of the bank’s HMDA-reportable loans within the assessment area. The excluded area has a majority-Black population. In a review of aggregate lending data, the bank lagged behind HMDA reporters in terms of percentage of loans originated within majority-Black census tracts in the excluded area and loans originated to Black individuals in the excluded area.

The ombudsman found the bank's low volume of lending to Black individuals in the excluded area and to Black individuals in majority-Black census tracts suggests the bank's reliance on general distribution media has not proven effective. The bank's lack of targeted marketing, lack of branches in the excluded area, and scarcity of home mortgage applications from Black applicants may have contributed to the bank’s subpar HMDA and small business lending performance in majority-Black census tracts.

Given the above conclusions, the ombudsman found the SO's determination that it had reason to believe the bank engaged in redlining appropriate and consistent with regulations and guidance provided by the Comptroller's Fair Lending Handbook. Consequently, the ombudsman agreed that a referral to the Department of Justice was warranted.