Calling it a “first,” the CFPB has issued a “no-action” letter to a California company that evaluates loan applications using “alternative data” rather than traditional methods in the agency’s efforts to learn more about how organizations use the information to make credit more accessible.
CFPB said that as a condition of the letter, issued to Upstart Network, Inc. of San Carlos, Calif., the company will report lending and compliance information to the bureau to mitigate risk to consumers. The information will also be used, CFPB stated, to aid the bureau’s “understanding of the real-world impact” of alternative data on lending decisions.
Under the terms of the no-action letter (issued by bureau staff, the agency pointed out), Upstart will share certain information regarding the loan applications it receives, how it decides which loans to approve, and how it will mitigate risk to consumers, as well as information on how its model expands access to credit for traditionally underserved populations.
According to CFPB, Upstart has an on-line lending platform for consumer lending, including credit card refinancing, student loans, and debt consolidation. In addition to traditional lending evaluation criteria (such as credit score and income), Upstart assesses consumer loan applications using education and employment history.
The agency said that its “no-action letter program” is aimed at facilitating consumer-friendly innovations where regulatory uncertainty may exist for certain emerging products or services. Under the policy, CFPB said, companies can apply for a statement from bureau staff on an innovative product or service that offers the potential for significant consumer benefit where “there is substantial uncertainty about whether or how specific provisions of law would be applied.”
“The CFPB’s no-action letter signifies that Bureau staff has no present intent to recommend initiation of supervisory or enforcement action against Upstart with respect to the Equal Credit Opportunity Act,” the bureau said in a release. “The letter applies to Upstart’s model for underwriting and pricing applicants as described in the company’s application materials. The no-action letter is specific to the facts and circumstances of the particular company and does not serve as an endorsement of the use of any particular variables or modeling techniques.”