In a joint statement, the Federal Reserve Board, CFPB, FDIC, National Credit Union Administration and the OCC (collectively, the "agencies") highlighted the benefits of banks, credit unions, and non-bank financial firms using alternative data for credit underwriting and mitigating risk. Alternative data was defined as "information not typically found in the consumer's credit files of the nationwide consumer reporting agencies or customarily provided by consumers as part of applications for credit."

In the statement, the agencies said that using alternative data can:

  • improve the "speed and accuracy" of credit decisions for consumers who may not receive credit in the mainstream credit system;
  • improve the accuracy and efficiency of small business underwriting, facilitating access to credit that may be essential to their growth;
  • provide consumers with access to additional products or more beneficial pricing or terms in accordance with enhanced assessments of repayment capacity; and
  • lower consumers' cost of credit and increase their access to credit because of innovations in automated underwriting and credit score modeling utilizing alternative data.

The agencies stated that certain alternative data may not necessarily present more risks than traditional data, citing as an example the increasingly automated use of cash flow data to assess a borrower's ability to repay loans. The agencies explained that cash flow data may provide several benefits including: (i) an improved measurement of income and expenses for consumers who demonstrate consistent income patterns from multiple sources and (ii) enhanced transparency and consumer control over cash flow data.

The agencies also noted that some financial firms may choose alternative data over traditional data for applicants who would typically be denied credit, ultimately enhancing opportunities for credit access.

In order to mitigate risk, the agencies encouraged financial firms to establish comprehensive compliance management programs that analyze appropriate consumer protection laws and rules in order to provide insight regarding the opportunities, risk and compliance requirements of certain alternative data.

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