Clear communication from the Consumer Financial Protection Bureau (CFPB) and the federal banking regulators on appropriate use of alternative data in the underwriting process would bring fintech lenders greater certainty about their compliance with fair lending and other consumer protection laws, a witness for the congressional watchdog told a House task force Thursday.
In the testimony, the Government Accountability Office’s (GAO) Lawrance L. Evans Jr., managing director for financial markets and community investment, said that better communication would help federally regulated banks and credit unions better manage the risks associated with partnering with fintech lenders that use these data. “Additionally, this communication might allow fintech lenders and their bank partners to innovate and expand access to credit through the responsible use of alternative data,” he said.
Evans’ testimony was essentially a recounting of a study released last December by GAO regarding clarification on lenders’ use of alternative data. The Financial Services Committee’s Task Force on Financial Technology held a hearing Thursday on “Examining the Use of Alternative Data in Underwriting and Credit Scoring to Expand Access to Credit.”
In developing last year’s report, GAO said it talked to all of the federal financial institution regulators and others. In its final report, the GAO noted that the CFPB and the financial institution regulators have monitored fintech lenders’ use of alternative data by collecting information and developing reports on alternative data, but they have not provided lenders and financial institutions they supervise with specific guidance on using the data in underwriting.
Thursday’s testimony asserted that last year’s report recommended that regulators communicate in writing to fintech lenders and financial institutions that partner with fintech lenders on the appropriate use of alternative data in the underwriting process. GAO said the regulators concurred with the recommendation and said they all planned to take action on it.