CFPB Explores Alternative Data for Credit-Invisible Consumers

02/27/17 – The Consumer Financial Protection Bureau (CFPB) has launched an inquiry into ways to expand access to credit for consumers who are credit-invisible or who lack enough credit history to obtain a credit score.

The Bureau estimates that 26 million Americans are credit-invisible, meaning they have no credit history with a nationwide consumer reporting agency. Another 19 million consumers have a credit history that has gone stale, or is insufficient to produce a credit score under most scoring models.

Without a sufficient credit history, consumers face barriers to accessing credit, or pay more for credit. This problem disproportionately impacts consumers who are Black or Hispanic, and people who live in low-income neighborhoods. It also impacts some recent immigrants, young people just getting started, or people who are recently widowed or divorced who don’t have enough credit history on their own.

For some consumers, the use of unconventional sources of information, called “alternative data,” may be a way to gain access to credit to build a credit history. Alternative data draws from sources such as bill payments for mobile phones and rent, and electronic transactions such as deposits, withdrawals or transfers. This information could show a track record of meeting obligations that may not turn up in a credit history. As a result, some who now cannot get reasonably priced credit may see more access or lower borrowing costs.

The CFPB’s Request for Information seeks insights into the benefits and risks of alternative data and the techniques used to compile and analyze it. The Bureau will explore topics including the affect on access to credit, complexity of the process, impact on costs and service, implications for privacy and security, and impact on specific groups.

CFPB Press Release, Cordray’s Remarks, Request for Information. See also Law360.