As the December 31st deadline approaches for FTC enforcement of the Red Flags Rule, we still seem quite a ways off from getting out from under the cloud of confusion and debate related to the definition of ‘creditor’ under the statutory provisions. For example, the Thune-Begich amendment to “amend the Fair Credit Reporting Act with respect to the applicability of identity theft guidelines to creditors” looks to greatly narrow the definition of creditor under the Rule, and therefore narrow the universe of businesses and institutions covered by the Red Flags Rule. The question remains, and will remain far past the December 31 enforcement deadline, as to how narrow the ‘creditor’ universe gets. Will this amendment be effective in excluding those types of entities generally not in the business of extending credit (such as physicians, lawyers, and other service providers) even if they do provide service in advance of payment collection or billing? Will this amendment exclude more broadly, for example ‘buy-here, pay-here’ auto dealers who don’t extend credit or furnish data to a credit reporting agency? Finally, is this the tip of an iceberg in which more entities opt out of the requirement for robust and effective identity theft prevention programs? So one has to ask if the original Red Flags Rule intent to “require many businesses and organizations to implement a written Identity Theft Prevention Program designed to detect the warning signs – or “red flags” – of identity theft in their day-to-day operations, take steps to prevent the crime, and mitigate the damage it inflicts” still holds true? Or is the idea of protecting consumer identities only a good one when it is convenient? It doesn’t appear to be linked with fraud risk as healthcare fraud, for example, is of major concern to most practitioners and service providers in that particular industry. Lastly, from an efficiency perspective, this debate would likely have been better timed at the drafting of the Red Flags Rule, and prior to the implementation of Red Flags programs across industries that may be ultimately excluded.
Red Flags Rule – just weeks until the FTC enforcement date of December 31. Well beyond that for clarity.
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Mortgage underwriting is entering a new phase. In a recent conversation with HousingWire’s Allison LaForgia, Michele Bodda, Group President of Experian Housing, Verification Solutions, and Employer Services, discussed how modern credit scores, alternative data and verification tools are changing how lenders evaluate borrowers. Lenders can now judge modernization by its results, Bodda said. “Now we’re actually letting more modern scores get into underwriting to help price loans and go all the way through to securitization,” she told HousingWire. “We’re letting the scores and the data actually speak for itself instead of just talking about it.” The Right Data at the Right Time Modernizing underwriting means providing useful information at the right stage, rather than giving lenders everything at once. “You don’t need everything all at once. You don’t need everything on initial pull,” Bodda said. Alternative data, such as rental payments and buy now, pay later activity, can help show how consumers manage obligations, especially those with thinner credit files. A thin credit file does not necessarily mean someone has a thin financial life. “It’s our responsibility as one of the primary data providers to make sure we can make all of that available, so that we’re best representing the consumer,” Bodda said. A fuller view of data may help lenders identify creditworthy applicants who might otherwise be difficult to assess. Simplifying Verification and Reducing Friction Bodda also shared how Experian is making credit information more easily accessible and reducing unnecessary costs during the originations process, explaining that new enhancements to Experian’s Power Profile Plus allow lenders to pull credit data at the start of underwriting and request another score later without repurchasing the data. “You can pull it later and not pay for the credit data again,” Bodda said. Experian is also investing in income and employment verification, including through a new partnership with Workday. Bodda explained that Experian will continue to focus on process improvement, competition and innovation across the mortgage ecosystem. A Broader Path to Homeownership As consumer expectations and underwriting capabilities evolve, borrowers want a process that reflects their financial lives, while lenders seek greater efficiency. Modern scores, relevant data, and streamlined verification can help lenders assess applications with more context—and may help more people pursue homeownership. “If we as an industry can open this up and bring more people into the process, then we’re going to thrive,” Bodda said in the interview. Watch the interview and hear all of Michele’s insights, and more here.
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