Regulators’ Statement on Alternative Data in Lending Decisions Spot On

Open Lending Helps Manage Compliance Risk!

By John Flynn, Open Lending President and CEO


Earlier this week, the federal banking and credit union regulators issued a joint statement focused on the consumer protection implications regarding the use of alternative data in underwriting, highlighting potential benefits and risks.


The statement acknowledged the broad range of alternative data available to banks, credit unions and non-bank financial firms, which the financial services providers are either using or considering using in their underwriting, fraud detection, marketing, pricing, servicing and account management. Open Lending uses alternative data sources to supplement FICO credit scores to better be able to determine a borrowers credit worthiness for lenders, as well as backing lending decisions with Lenders Protection default insurance. To learn more, click here.


Read John’s recent article for NAFCU Journal on alternative data in underwriting!


I applaud the agencies’ appreciation for data and analytics revolution taking place in the financial services market. Our credit union, bank and other auto lender clients have come to rely on us to provide them with safe and sound ways to reach more consumers with less-than-perfect credit, as well as more deeply engage with their dealerships for those that are involved in indirect lending. The agencies statement read, “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. Using alternative data may enable consumers to obtain additional products and/or more favorable pricing/terms based on enhanced assessments of repayment capacity. 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.” All true.


The NCUA, FDIC, OCC, CFPB and the Federal Reserve also pointed out that developments in data and credit analytics may come “questions regarding how to effectively leverage new technological developments that are consistent with applicable consumer protection laws.” We at Open Lending want to remind you that we are fully fair lending compliant. Open Lending has been working in credit underwriting for nearly two decades, and our products are backed by people with even greater experience. Rest assured your borrowers are treated fairly and your financial institution is protected in this regard, in addition to Lenders Protection and predictive analytics.


Check out the many benefits of Open Lending and Lenders Protection!


Thankfully, the agencies “recognize alternative data’s potential to expand access to credit and produce benefits for consumers…In addition, the agencies are aware that the use of certain alternative data may present no greater risks than data traditionally used in the credit evaluation process.”


The banking regulators understand that alternative data may be used for second-look programs to offer loans to those who would otherwise be denied credit. Understand that with Open Lending, everyone gets one look through our system and is priced appropriately for the borrowers credit risk profile and your institution’s ROA target; all of your applicants receive the same streamlined experience. No making you, or them, wait longer for an auto loan approval because of a few dings in their credit report. We know your members and customers are more than a credit report to you, and we get you serving them faster. Open Lending helps you provide loans with dignity to all of your borrowers.


The agencies are planning additional statements as data technology and its usage evolves and welcomed feedback on their statement. Here’s where you can submit your thoughts on the matter:

  • Board of Governors of the Federal Reserve System: regs.comments@federalreserve.gov Consumer Financial Protection Bureau: altdatastatement@cfpb.gov

  • Federal Deposit Insurance Corporation: Comments@fdic.gov

  • National Credit Union Administration: ComplianceMail@ncua.gov

  • Office of the Comptroller of the Currency: altdatastatement@occ.treas.gov

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