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Changing Census Tracts and the Impact on Your Fair Lending Analysis

3 min read
May 2, 2023

Every 10 years, the U.S. Census Bureau conducts a census of the U.S. population. It then reassesses the boundaries of census tracts based on shifts in the population. (Census tracts are a subdivision of a county or other area.) Tracts that have seen substantial population loss may be combined to form one tract, while tracts that experience growth may be divided into multiple tracts.  

(Note: This is different from political redistricting, the process state governments use to draw congressional districts.) 

In 2023, lenders are applying 2022 Home Mortgage Disclosure Act (HMDA) data to the 2020 census tracts for the first time. (In 2022, 2021 data was applied to 2010 census tracts.) Changes to census tracts can impact your Community Reinvestment Act (CRA), redlining, and other fair lending analytics, including who your peers are and the census tracts you take. Here’s what you need to know.


Table of Contents 


What is a census tract? 

Census tracts are small, contiguous subdivisions of a county or other area. An ideal census tract has a population of 4,000 people, but their population can include anywhere from 1,200 to 8,000 residents.   

Census tracts generally have a population size between 1,200 and 8,000 people, with an optimum size of 4,000 people.  

When over 50% of a census tract's population consists of minority groups, like Black, Asian, Hispanic, Asian-Pacific Islander, and Native American individuals, it's called a majority-minority census tract (MMCT). 

Related: Compliance 101: Defining REMAs, Assessment Areas & More 

What role do census tracts play in fair lending analysis? 

When assessing your data for compliance with fair lending, CRA, and Redlining rules, it's important to consider how you define your geographic area, either as a Reasonably Expected Market Area (REMA) or an Assessment Area. Regulatory authorities will take note if you exclude any majority-minority or low-moderate income (LMI) census tracts, as this could suggest Redlining. Additionally, if you need to take a partial county for a valid business reason, make sure to consult with your regulator for approval. 

For fair lending analyses, you might specifically look at tracts where a single minority group makes up the majority of residents. 

What to do about census tract changes?

Review census tract changes on assessment areas 

If your institution uses manual processes for fair lending analysis, you’ll need to study the census tract changes to see if it impacts any of your assessment areas. For example, if your assessment area includes a county and one census tract in that county has split into two census tracts, you’ll need to make sure that both tracts are included in your analysis. You don’t want to accidentally leave out an area.  

You also need to be very aware of where populations shift from lower income to higher income, or from low-minority to high-minority, or vice versa. This can affect many areas of your financial institution, from compliance to marketing.   

Good news for Nrelief customers: If your institution is using Nrelief for fair lending analytics, you can use the software to do the analysis.  

Pay special attention if your institution takes partial counties 

If your institution takes partial census tracts for analysis, meaning you take just some of the tracts in a county, it’s important to review those tracts to see if any of the tracts you’ve been using split. Then you’ll need to adjust your analysis area. In addition, make sure you are not arbitrarily excluding any LMI or MMCTs.   

Let’s say you only take five census tracts in a county, but now those five tracts are now seven tracts. You need to make sure that all seven of those tracts are included in your analysis.  

(Taking partial census tracts is a special situation, and typically requires permission from the regulators. Do not take partial census tracts without consulting them first.) 

Related: How to Tell Your HMDA Data Story

Conduct your fair lending data analysis as usual 

Once you’ve sorted out your census tracts, your financial institution can analyze your HMDA data, looking for disparities and other potential signs of a fair lending issue.  

Identifying census tract changes and analyzing HMDA data is a heavy lift. Many financial institutions rely on fair lending analytics software to lighten their load, ensure data is accurately analyzed, and gain insights into what the results mean. If you’d like to learn more about fair lending analytics software, we’re here to help. 


Need help understanding what the data means? Listen to our on-demand webinar Understanding Your HMDA Data: What Does it Mean and What Should You Do About it? 



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