Federal Agencies Issue Statement Recognizing Alternative Data’s Potential to Expand Credit Access and Benefit Consumers

Last week, five federal agencies—including 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—banded together to issue an interagency statement on the use of alternative data in credit underwriting. This alternative data includes information not traditionally found in consumers’ credit files.

Using alternative data can improve the accuracy and speed of credit-based decisions by providing firms with more information to determine consumer creditworthiness. This, in turn, may lead to increased consumer access to additional products, better pricing, and enhanced repayment policies.

“These innovations reflect the continuing evolution of automated underwriting and credit score modeling, offering the potential to lower the cost of credit and increase access to credit,” the statement reads.

The statement furthermore notes that an effective compliance management program would analyze relevant consumer protection laws so that firms know the risks, opportunities, and compliance rules of using alternative data. Using such data raises questions about how to properly leverage technological developments, so a compliance program would help to regulate increased data usage current laws.

“As the agencies gain a deeper understanding of alternative data usages, they may offer further information on the appropriate use of alternative data,” the statement concludes. “Firms may choose to consult with appropriate regulators when planning for the use of alternative data.”