The U.S. Senate passed legislation recently that would exempt certain businesses from complying with the Red Flags Rule. Sponsored by Senator John Thune (R-SD), the bill (S. 3987) creates an exception to the Red Flags Rule for businesses that do not advance funds to a customer. The bill would, for example, redefine the term “creditor” as currently described under the Red Flags Rule guidelines, to apply only to those businesses who advance funds to, or on behalf of, a customer, and based upon an obligation to repay those advanced funds. The legislation also still provides the Federal Trade Commission with authority to require certain organizations to comply with the Red Flags Rule. The legislation now moves to the U.S. House of Representatives, where the chamber must approve the bill before the end of the year in order for the bill to become law. This may alleviate many businesses in industries such as law practices, healthcare providers (particularly solo practitioners), and perhaps some service providers in telecommunications and utilities. However, it is likely that many businesses in the utilities space will still fall under Red Flags Rule enforcement given their accessing of consumer credit profiles in many of their application processing procedures. Again, one has to wonder what the original intent of the Red Flags Rule was. If it was to protect consumers from identity theft and other fraud schemes via a robust identity theft prevention program, then vastly narrowing the businesses under which potential enforcement applies seems counter-productive. The advancement of funds or not doesn’t necessarily add to or reduce risk of fraud, as much as the actual obtainment of accounts and services with identity information…regardless of industry. More to follow…
Senate approves legislation to narrow scope of the Red Flags Rule
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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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