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Banking Law

Banking Regulators Release Statement on Use of Alternative Data in Credit Underwriting

By Eric Mogilnicki and Sam Adriance, Covington & Burling LLP

On December 3, 2019, the Federal Reserve Board, Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, the Consumer Financial Protection Bureau, and the National Credit Union Administration (collectively, the “Regulators”) released a joint statement on the use of alternative data in credit underwriting.

The statement highlights the potential benefits of using alternative data in credit decisions, such as expanded access to credit for consumers without traditional credit histories.  The statement focuses in particular on the usefulness of cash flow data to evaluate creditworthiness, explaining that such data is: (1) likely to be accurate because it is specific to the consumer and “derived from reliable sources”; (2) relatively simple to disclose and obtain express permission from consumers to use; and (3) a direct indicator of a consumer’s finances, meaning it “may present lower risks than other data.”

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