Bank, credit union regulators’ statement cites usefulness of alternative data in credit underwriting, notes benefits/risks

The value of information not typically found in a consumer’s credit report, used against the backdrop of a well-designed compliance management program, is recognized as potentially helpful in credit underwriting in a statement issued jointly Tuesday by five federal financial institution regulatory agencies.

The statement – from the Federal Reserve Board, Consumer Financial Protection Bureau (CFPB), Federal Deposit Insurance Corp (FDIC), Office of the Comptroller of the Currency (OCC), and National Credit Union Administration (NCUA) – is focused on the consumer protection implications of the use of alternative data in underwriting, highlighting potential benefits and risks.

In the statement, the regulators of federally insured banks, savings associations, and credit unions said they “recognize that use of alternative data may improve the speed and accuracy of credit decisions and may help firms evaluate the creditworthiness of consumers who currently may not obtain credit in the mainstream credit system.” They noted that alternative data include cash flow data derived from consumers’ bank account records.

A well-designed compliance management program, the agencies stated, “provides for a thorough analysis of relevant consumer protection laws and regulations to ensure firms understand the opportunities, risks, and compliance requirements before using alternative data.” The agencies pointed to fair lending laws (such as the Equal Credit Opportunity Act), prohibitions against unfair, deceptive, or abusive acts or practices, and the Fair Credit Reporting Act.

Federal Regulators issue joint statement on the use of alternative data in credit underwriting

Be the first to comment

Leave a Reply

Your email address will not be published.