Five federal banking agencies yesterday issued a joint statement on the use of alternative data in credit underwriting. In the statement, the Fed, the CFPB, the FDIC, the NCUA and the OCC noted that use of alternative data—such as cash flow data—may improve the speed and accuracy of credit decisions and increase access to credit for some consumers. The agencies warned, however, that as with other credit underwriting innovations, a thorough analysis of relevant consumer protection laws will be necessary.
“Many factors associated with the use of alternative data, including those discussed for cash flow data, may increase or decrease consumer protection risks,” the agencies wrote. “Robust compliance management includes appropriate testing, monitoring and controls to ensure consumer protection risks are understood and addressed.”
ABA has long held that when used responsibly, alternative data has the potential to improve underwriting, reduce losses, lower costs of credit provisions and open the door to mainstream credit to individuals that may not have established credit histories. The association published a white paper earlier this year on the benefits of alternative credit analytics as a supplement to its fintech playbook.