Interagency Statement on Use of Alternative Data in Credit Underwriting

On Tuesday, December 3, 2019, the Federal Reserve, CFPB, FDIC, NCUA and OCC issued a joint statement which highlights the benefits to consumers that flow from the use of alternative data in underwriting. The statement emphasizes financial institutions considering the use of alternative data in underwriting must have a robust and well-designed compliance program to ensure compliance with consumer protection laws.

 

CBA believes this is a clear signal from the agencies that they recognize the need for regulated banks and credit unions to use alternative data in underwriting to level the playing field with fintechs, so long as proper risk management guardrails are in place.

 

Agencies cited the following as benefits of alternative data when used in a manner consistent with consumer protection laws:

 

  • Improve the speed and accuracy of credit decisions;
  • Help firms evaluate the creditworthiness of consumers who currently may not obtain credit in the mainstream credit system;
  • Enable consumers to obtain additional products and/or more favorable pricing/terms based on enhanced assessments of repayment capacity; and
  • The potential to lower the cost of credit and increase access to credit.