At the November 2020 Academic Research Council Meeting, CFPB Director Kathy Kraninger briefly described the agency's research perspective on small business lending data, credit reporting accuracy, and alternative credit data.
She explained that Dodd-Frank Section 1071 ("Small business data collection") amended the Equal Credit Opportunity Act to require that financial institutions report on the credit applications of women-owned, minority-owned, and small businesses. The requirements under Section 1071 do not come into effect until the CFPB adopts implementing rules (see 2011 letter from CFPB General Counsel).
Ms. Kraninger discussed the importance of using accurate data for credit reporting, and cited a 2012 Federal Trade Commission study in which 25 percent of participants believed their credit reports were inaccurate, and 70 percent still believed data was inaccurate after lodging a dispute. Ms. Kraninger stated the CFPB is trying to "fill the gaps."
Ms. Kraninger discussed the benefits and risks of non-traditional or alternative credit data ("alt data") based on CFPB research. Ms. Kraninger described this data as including rent and utility payments, employment history, and cash-flow information. Ms. Kraninger stated that alt data has the potential to make credit decisions faster, but its use will require increasingly complex models to make credit and pricing decisions, meaning that both lenders and borrowers will have a more difficult time understanding how credit decisions are made.
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