FRB: Consumer Affairs Letter CA 01 - 08

This letter announces a uniform policy for sampling and resubmission of data collected and maintained by state member banks in accordance with the requirements of Regulation BB, which implements the Community Reinvestment Act (CRA). The sampling approach and data resubmission policy are similar to those used for verifying and requiring the resubmission of data reported under the Home Mortgage Disclosure Act (see CA 00-2). There are two differences. First, the key fields are different.¹ The statistical method employed in the sample table design for HMDA purposes can also be applied to data collected and maintained for CRA purposes. C&CA staff have worked in conjunction with economists from the Board's Division of Research and Statistics to ensure these policies are effective for determining the accuracy of CRA data. The CRA sampling model employs a 5.0 percent precision level with a minimum 90.0 percent confidence. Second, for those banks that do not use the FFIEC data entry software for editing and reporting small business and small farm loan data, examiners will need to verify the accuracy of the CRA data aggregation.

As with the HMDA sampling procedures, the approach outlined in Attachment I employs a two-tier sampling method (see Attachment II) that allows examiners in certain scenarios to stop their file review after a minimal number of files are reviewed. For example, if data for 150 loan files was reported, a total random sample of 56 files should be selected. The examiner may initially begin a file review using 29 files. If no more than one file has any errors in any key fields in this review, the examiner should stop the file review after the 29 files are completed.

However, if between two (2) and five (5) files are found to have one or more errors in key fields, the examiner must continue reviewing the 27 additional files, for a total sample size of 56 files. After completing the review of the total sample of 56 files, the examiner should determine the total number of files with key field errors and apply the new CRA data resubmission policy (see Attachment III) to the entire sample, if necessary.

If, however, with a universe of 150 files, the examiner finds six (6) or more files with an error or errors in key fields during the initial file review, the examiner should stop after completing a review of the initial 29 files. In this case, the findings based on the initial files reviewed would constitute sufficient statistical evidence to conclude that a larger sample would have an unacceptable error rate, thus requiring resubmission. At this point, the examiner should apply the CRA data resubmission standards, found in Attachment III, to the total sample.

After analyzing the errors found during the sampling process, examiners may choose to perform supplemental targeted random sampling. For example, after completing a review of a CRA sample, an examiner may discover that CRA data errors appear to be coming from one particular loan decision center or are most prevalent in a particular product type. The examiner might decide to select a supplemental random sample of loan records specifically tied to that loan decision center or loan product. In these instances, supplemental samples should follow the same sampling process as the original sample, utilizing the two-tier approach found in Attachment II.

The statistical validity of this approach relies upon review of a random sample from the data maintained at each bank, as well as a review of information year by year (separate universes) and not combined into one universe.

These new CRA data sampling procedures are effective immediately. If you have any questions regarding the information in this letter, please contact your Review Examiner.