The Board of Governors of the Federal Reserve System, the Consumer Financial Protection Bureau, the Federal Deposit Insurance Corporation, the National Credit Union Administration and the Office of the Comptroller of the Currency are aware of a broad range of alternative data that bank and non-bank financial firms are either using or contemplating for use in credit underwriting, as well as in fraud detection, marketing, pricing, servicing, and account management.
This statement is focused on the consumer protection implications of the use of alternative data in underwriting, highlighting potential benefits and risks. The agencies 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.
Many factors associated with the use of alternative data, including those discussed for cash flow data, may increase or decrease consumer protection risks. For example, using alternative data, such as cash flow data, that are directly related to consumers’ finances and how consumers manage their financial commitments may present lower risks than other data.
A well-designed compliance management program 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. Based on that analysis, data that present greater consumer protection risks warrant more robust compliance management. Robust compliance management includes appropriate testing, monitoring and controls to ensure consumer protection risks are understood and addressed.
As the agencies gain a deeper understanding of alternative data usages, they may offer further information on the appropriate use of alternative data. Firms may choose to consult with appropriate regulators when planning for the use of alternative data.