I want to alert all BOL readers to what I consider to be a serious abuse of statistics by regulators and the DOJ.

First, in 2 meetings during the last 10 months with regulators and groups of bankers and in a one-on-one call with a top regulator responsible for fair lending I learned that regulators appear to have discarded the unofficial REMA guidance as evidenced in examiner manuals (REMA's are not defined in statute nor in regulations) and now replaced it with a mandate to define a REMA as nothing less than an entire MSA or MD (or statewide non-MSA). When pressed one regulator said they will sometimes use entire counties as the smallest geographic unit for a REMA

What this means is that REMA's are no longer reasonable for many community banks. When REMA's (and Assessment Areas) are no longer reasonable any analysis predicated on such markets is unreliable at best, and seriously misleading at worst).

Recently a BOL poster posted:

"We have a branch location that is in part of a large MSA (on the fringe). The branch is 60 miles from the next county line. We have currently only taken the one county in our AA because of the distance to the next county. Our regulator is telling us that we have to take a particular county because it is comprised of several super minority majority tracts. They say we may have the appearance of redlining because we did not take this particular county. We have no branches in that county and no ATMs. There are a lot of banks within that 60 miles. We do have loans there but they make up less than 5% of our overall loans. They are not focused on other counties in that MSA just this particular one."

This is not an isolated example of abusing an undefined (maybe illegal because it is so vague and subject to change at the whim of a regulator) concept (REMA). I've seen numerous examples beginning in 2022. I am advising a client in one particularly egregious situation (even worse than the one quoted above) where there are no minority tracts in their 3-county AA and they are being told by examiners that their REMA should be the entire MSA (which is double the size of their historic AA- and the MM tracts are all located in 1 of the counties outside the bank's AA).

I believe this all can be traced back to the "anti-redlining initiative" announced by the DOJ in October 2022 and is all driven by political decisions emanating from DC. In April, the Assistant Attorney General Clarke, in a speech and Seton Hall University said the DOJ had received a record number of redlining referrals from bank regulators during 2022.

The problem of unrealistic "Reasonably Expected Market Areas" is compounded by the abuse of the statistical concept of "statistical significance" which is based on the assumption that comparisons are valid for common markets. But when an unreasonably expanded markets are the basis then the comparisons can be completely "out-of-whack". Look up "Simpson's Paradox" which explains how statistical comparisons of aggregated data can give completely contradictory results than comparisons among the subgroups in a population being tested.

I am alerting BOL readers to this very big threat because many bankers will back down even when presented with unfair accusations because its difficult to fight the hand that regulates you. I believe the ABA, the ICBA and other bank associations should get together and challenge this newly developed phenomenon. I know the ABA is aware of this problem because I spoke with a very high regulatory compliance official at the ABA. But to the best of my knowledge the associations are not advocating on behalf of their members. It's time for banker members to demand the ABA and the ICBA stand up. Or, if those organizations are doing something about this, to proclaim it to the industry and call it to the attention of the public

Members of those organizations should voice their opinions so the organizations are aware of this hitting the banks and can bring it up. As officer Fife used to say, "nip it, nip it in the bud" before myth becomes reality.

Check out this redlining settlement announced on August 28, 2023 by the DOJ against a $366 million Oklahoma bank. The press release describes the case as referred by the FDIC to the DOJ and as part of the "anti redlining initiative"

American Bank of OK resolves lending discrimination charges

Almost the entire complaint is based on redlining allegations. However, if you read the complete complaint the alleged racial slurs expressed in internal emails did not help the bank. Any fair lending self assessment should review any internal emails and communications of any sort that indicate racial bias.

Thank you for sharing Len. Yikes...

BTW, the DOJ anti-redlining initiative was announced in October 2021, not October 2022 as I inadvertently said in my original post. The ripple effect is becoming more and more evident.

We had to fight this issue in our 2021 exam. We have a 2 county MSA. We have 1 branch in the eastern and more rural of the 2 counties and have only taken that one county in our assessment area for years. Well, the other county has a city in it with a minority presence. The FDIC wanted to include the entire MSA in our CRA evaluation, but after several days of back and forth we finally managed to convince them no one from the city is going to drive 20 minutes to come to our one little branch (2 tellers and a FSR). I'm worried what's going to happen in our 2024 exam. We don't have a presence in the other county with the minority population.

I am seeing more and more crazy examples of UREMA's (Unreasonably Expected Market Areas) used by examiners to set banks up for redlining charges.

Bankers - start complaining to the ABA, the ICBA and any bank associations you belong to. The only way to stop this is to have the associations that represent you do their job and start complaining on your behalf.

I am teaching about this at a Regulatory Compliance School next week and I am contemplating broadcasting a webinar on the topic in October.

I am interested in comments like Carolina Blue submitted in this thread. Anyone else who reads BOL having this kind of experience?

BTW, in one particularly egregious example, the regional office of the regulator had no problem with the bank's performance but when their CRA exam results were sent to DC the regional office was told assert the bank should have the entire MSA as its REMA and based on that, the bank was redlining. So the regional office and the regional examiners did not see a problem, but the folks in DC did see a problem.