FRB: Consumer Affairs Letter CA 01 - 04 - Alternative Fair Lending Examination Procedures

This letter transmits an alternative fair lending examination approach for banks that exhibit little discrimination risk. This new examination approach reflects the experience we have gained using the FFIEC fair lending examination procedures, which were distributed in January, 1999 (see CA 99-1). This letter is a supplement to CA 99-1.

System experience has found that some banks have a common risk profile. Typically, they are stable community banks that are often located in suburban or rural areas where the area demographics show a very low percentage of minority residents. These banks offer standard products, and many of them are predominately commercial or agricultural lenders. Comparative analysis usually focuses on gender as the prohibited basis. In some cases there are an insufficient number of prohibited basis denials to conduct an underwriting analysis and a terms and conditions analysis may have been conducted in the previous examination with no concerns identified. In addition, lending policies and staff have not changed.

In such cases, there may be insufficient risk to warrant the establishment of any focal points for the onsite examination. The attached procedures can be used in these situations. They are intended to help validate the conclusions that were drawn in the scoping process and should result in a reduction of resources being devoted to banks where the level of risk clearly is not sufficient to support extensive comparative analysis.

We will be monitoring the implementation of this alternative examination approach. We plan to ask you to provide us a list of the banks in which you have used these new procedures in the 2001 annual questionnaire. This information will allow us to determine how often this approach is used and help us evaluate associated resource issues. Questions on this alternative examination approach may be referred to Karen Murtagh or the review examiner assigned to your district.