US Federal Regulators Accept Alternative Data
Five US Federal financial regulatory agencies have issued a joint statement outlining their thoughts on the use of alternative data in underwriting and credit analysis by banks, credit unions and financial firms.
The statement, issued by the Federal Reserve Board (Federal Reserve), the Consumer Financial Protection Bureau (CFPB), the Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency (OCC), and the National Credit Union Administration (NCUA), notes the benefits alternative data can provide for consumers. This includes greater financial inclusion and access to a wider range of financial products.
Alternative data, or big data, offers the opportunity to widen financial inclusion for those with thin credit histories. In this case, alternative data means data which, historically, was not generally used for credit reports – such as cash flow data from bank account records.
As a host of successful Fintechs (and “BigTechs”) around the world will attest, the use of this information is extremely effective, so it is encouraging to see these regulators catching up in this field.
Its use could increase the speed and accuracy of credit decisions, potentially extending credit to individuals who cannot currently obtain it. However, as reported here last month, the use of this kind of personal data requires careful consideration of privacy and policy. To this end, the statement recognises that the use of alternative data must be consistent with consumer protection laws.
Read the statement here.