Following the interagency fair lending examination procedure comparative file sample size requirements, I'm left with a sample size that is much too large for the resources available to conduct a comparative file review.

When faced with this dilemma, how do you approach and justify the approach for pairing it down to a reasonable sample size?

Thanks in advance for any and all comments!

Nothing except the suggestion that I sent to you.

There are a couple of different file reviews - are you talking about decisioning or rate and terms? Also, if the bank is going to perform a fair lending review, are there internal guidelines of what to do in the event that the review uncovers any unfairness?

IMHO, a lot would be already determined by the controls in place, if there is any discretion to underwriting (centralized?), pricing, etc., if there is a 2nd review by someone competent (rather than a rubber stamp), if policy covers exceptions, and if the exceptions are recorded, analyzed, monitored and reported.

1 - Validate the self-assessment. If there is a consistent policy, no loan officer discretion for policy issues, and a robust second review, there should be no underwriting issues. If the bank goes by the rate/term sheets, with the only discretion being what is allowed by policy (e.g. auto withdrawals from XXX Bank's checking account get a 0.25% rate reduction), there should be no pricing issues.

2 - The bank could modify the review by identifying the declined loans that have a better (LTV/DTI/Credit score) than approved loans to ensure that the decisions were appropriate, and concentrating on that comparison. As long as there are no exceptions in the sample, call it a day.

3 - If resources are an issue, outsource the fair lending review.

The decision should be made by management, Audit Committee, etc., and documented.

How often is a fair lending review required?

My understanding is at least every 18 months...

There is no policy that I am aware of. A lot would depend on the controls and discretion allowed. (see above)

Redlining should be an annual look-at though