Tag: credit reporting

Lenders are under pressure to improve access to financial services, but can it also be a vehicle for driving growth? With the global pandemic and social justice movements exposing societal issues of equity, financial institutions are being called upon to do their part to address these problems, too. Lenders are increasingly under pressure to improve access to the financial system and help close the wealth gap in America.  Specifically, there are calls to improve financial inclusion – the process of ensuring financial products and services are accessible and affordable to everyone. Financial inclusion seeks to remove barriers to accessing credit, which can ultimately help individuals and businesses create wealth and elevate communities. Activists and regulators have singled out the current credit scoring system as a significant obstacle for a large portion of U.S. consumers.  From an equity standpoint, tackling financial inclusion is a no-brainer: better access to credit allows more consumers to secure safer housing and better schools, which could lead to higher-paying jobs, as well as the ability to start businesses and get insurance. Being able to access credit in a regulated and transparent way underpins financial stability and prosperity for communities and is key to creating a stronger economic system. Beyond “doing the right thing," research shows that financial inclusion can also fuel business growth for lenders.  Get ahead of the game  There is mounting regulatory pressure to embrace financial inclusion, and financial institutions may soon need to comply with new mandates. Current lending practices overlook many marginalized communities and low-income consumers, and government agencies are seeking to change that.  Government agencies and organizations, such as the Consumer Financial Protection Bureau (CFPB) and Office of the Comptroller of the Currency (OCC), are requiring greater scrutiny and accountability of financial institutions, working to overhaul the credit reporting system to ensure fairness and equality.  As a lender, it makes good business sense to tackle this problem now. For starters, as more institutions embrace Corporate Social Responsibility (CSR) mandates—something that's increasingly demanded by shareholders and customers alike—financial inclusion is a natural place to start. It demonstrates a commitment to CSR principles and creates a positive brand built on equity.  Further, financial institutions that embrace these changes gain an early adopter advantage and can build a loyal customer base. As these consumers begin to build wealth and expand their use of financial products, lenders will be able to forge lifelong relationships with these customers.  Why not get a head start on making positive organizational change before the law compels it?  Grow your business (and profits)  To be sure, financial inclusion is a pressing moral imperative that financial institutions must address. But financial inclusion doesn't come at the expense of profit. It represents an enormous opportunity to do business with a large, untapped market without taking on additional risk. In many instances, unscorable and credit invisible consumers exhibit promising credit characteristics, which the conventional credit scoring system does not yet recognize.  Consider consumers coming to the U.S. from other countries. They may have good credit histories in their home countries but have not yet established a credit history here. Likewise, many young, emerging consumers haven't generated enough history to be categorized as creditworthy. And some consumers may simply not utilize traditional credit instruments, like credit cards or loans. Instead, they may be using non-bank credit instruments (like payday loans or buy-now-pay-later arrangements) but regularly make payments.  Ultimately, because of the way the credit system works, research shows that lenders are ignoring almost 20 percent of the U.S. population that don't have conventional credit scores as potential customers. These consumers may not be inherently riskier than scored consumers, but they often get labelled as such by the current credit scoring system. That's a major, missed opportunity!  Modern credit scoring tools can help fill the information gap and rectify this. They draw on wider data sources that include consumer activities (like rent, utility and non-bank loan payments) and provide holistic information to assist with more accurate decisioning. For example, Lift Premium™ can score 96 percent of Americans with this additional information—a vast improvement over the 81 percent who are currently scored with conventional credit data.1 By tapping into these tools, financial institutions can extend credit to underserved populations, foster consumer loyalty and grow their portfolio of profitable customers.  Do good for the economy  Research suggests that financial inclusion can provide better outcomes for both individuals and economies. Specifically, it can lead to greater investment in education and businesses, better health, lower inequality, and greater entrepreneurship.  For example, an entrepreneur who can access a small business loan due to an expanded credit scoring model is subsequently able to create jobs and generate taxable revenue. Small business owners spend money in their communities and add to the tax base – money that can be used to improve services and attract even more investment.  Of course, not every start-up is a success. But if even a portion of new businesses thrive, a system that allows more consumers to access opportunities to launch businesses will increase that possibility.  The last word  Financial inclusion promotes a stronger economy and thriving communities by opening the world of financial services to more people, which benefits everyone. It enables underserved populations to leverage credit to become homeowners, start businesses and use credit responsibly—all markers of financial health. That in turn creates generational wealth that goes a long way toward closing the wealth gap.  And widening the credit net also enables lenders to uncover new revenue sources by tapping new creditworthy consumers. Expanded data and advanced analytics allow lenders to get a fuller picture of credit invisible and unscorable consumers. Opening the door of credit will go a long way to establishing customer loyalty and creating opportunities for both consumers and lenders.  Learn more

Reporting positive rental payment histories to credit bureaus has been in the news more than once in recent months. In early November, Freddie Mac announced it will provide closing cost credits on multifamily loans for owners of apartment properties who agree to report on-time rental payments. In July, California began requiring multifamily properties that receive federal, state or local subsidies to offer each resident in a subsidized apartment home the option of having their rental payments reported to a major credit bureau. And while reporting positive rental payments to credit bureaus may not yet be part of the multifamily mainstream, forward-thinking operators have already been doing it for years. Below is a quick primer on this practice and its benefits. Why do renters need this service? A strong, positive credit history is critical to securing car loans, credit cards and mortgages – and doing so at favorable interest rates. Unfortunately, unlike homeowners, apartment residents traditionally have not seen a positive impact on their credit reports for making their rent payments on time and in full, even though these payments can be very large and usually make up their largest monthly expense. In fact, renters are seven times more likely to be credit invisible – meaning they lack enough credit history to generate a credit score – than homeowners, according to the Credit Builders Alliance (CBA). This especially impacts lower-income households and communities of color. Renters make up approximately 60% of the U.S. households that make less than $25,000 a year, while Black and Hispanic households are twice as likely as White households to rent, according to the CBA. Experian is among the organizations working with the Consumer Data Industry Association (CDIA) on the association's Rental Empowerment Project. Through the REP, CDIA and its partner organizations seek to increase the reporting of rental payment history information by landlords and property managers through the development and adoption of a uniform, universal data reporting format for landlords and property managers to use. How does reporting positive rental payments to credit bureaus have an impact on a resident's credit history? The impact on any individual renter will obviously vary because of a wide array of factors. But to get some sense of the potential impact reporting on-time rental payments can have, consider the results of the CBA's Power of Rent Reporting pilot. In that test, 100% of renters who started off with no credit score became scorable at the near prime or prime level. In addition, residents with subprime scores saw their score increase by an average of 32 points. How does reporting positive rent payments benefit rental-housing owners and operators? Reporting positive rental payments provides residents with a powerful incentive to pay their rent on time and in full. And because there’s not a huge percentage of apartment communities currently doing this, helping residents build their credit history in this manner can offer a real competitive advantage. Learn more

When running a credit report on a new applicant, you must ensure Fair Credit Reporting Act (FCRA) compliance before accessing, using and sharing the collected data. The Coronavirus Aid, Relief, and Economic Security (CARES) Act has impacted credit reporting under the FCRA, as has new guidance from the Consumer Financial Protection Bureau (CFPB). Recent updates include: The CARES Act amended the FCRA to require furnishers who agree to an “accommodation,”1 to report the account as current, although it is permitted to continue to report the account as delinquent if the account was delinquent before the accommodation was made. Although not legally obligated, data furnishers should continue furnishing information to the credit reporting agencies (CRAs) during the COVID-19 crisis, and make sure that information reported is complete and accurate. Below is a brief FCRA-related compliance overview2 covering various FCRA requirements3 when requesting and using consumer credit reports for an extension of credit permissible purpose. For more information regarding your responsibilities under the FCRA as a user of consumer reports, please consult your Legal Counsel and the Notice to Users of Consumer Reports: Obligations of Users Under the FCRA handbook located on our website. Before obtaining a consumer report you have…  Reviewed your federal and state regulations and laws related to consumer reports, scores, decisions, etc.  Made sure you have a valid permissible purpose for pulling the consumer report.  Certified compliance to the CRA from which you are getting the consumer report. You have certified that you complied with all the federal and state requirements. After you take an adverse action based on a consumer report you… Provide the consumer with an oral, written or electronic notice of the adverse action. Provide written or electronic disclosure of the numerical credit score used to take the adverse action, or when providing a “risk-based pricing” notice. Provide the consumer with an oral, written or electronic notice, which includes the below information:  Name, address and telephone number of CRA that supplied the report, if nationwide. A statement that the CRA did not make the adverse decision and therefore can’t explain why the decision was made.  Notice of the consumer’s right to a free copy of their report from the CRA, if requested within 60 days.  Notice of the consumer’s right to dispute with the CRA the accuracy or completeness of any information in a consumer report provided by the CRA. Provide the consumer with a “risk-based pricing” notice if credit was granted but on less favorable terms based on information in their consumer report. We understand how challenging it is to understand and meet all your obligations as a data furnisher – we’re here to make it a little easier. Click below to speak with a representative and gain more insight on how the CARES Act impacts FCRA reporting. Download overview Speak with a representative 1An “accommodation” is defined as “an agreement to defer one or more payments, make a partial payment, forbear any delinquent amounts, modify a loan or contract, or any other assistance or relief” granted to a consumer affected by COVID-19 during the covered period. 2This FCRA overview is not legal guidance and does not enumerate all your requirements under the FCRA as a user of consumer reports. Additionally, this FCRA Overview is not intended to provide legal advice or counsel you regarding your obligations under the FCRA or any other federal or state law or regulation. Should you have any questions about your institution’s specific obligations under the FCRA or any other federal or state law or regulation, you should consult with your Legal Counsel. 3This FCRA overview is intended to be used solely by financial service providers when extending credit to consumers and does not include all FCRA regulatory obligations. You are responsible for regulatory compliance when requesting and using consumer reports, which includes adhering to all applicable federal and state statutes and regulations and ensuring that you have the correct policies and procedures in place.

Last week, the unemployment rate soared past 20%, with over 30 million job losses attributed to the COVID-19 pandemic. As a result, many consumers are facing financial stress, which has raised many questions and discussions around how credit history and reporting should be treated at this time. Since the initial start of the pandemic, credit reporting companies and data furnishers have been put under the spotlight to ensure that consumers are able to get the assistance that they need. Numerous questions and concerns have also been raised around the extent of which consumers have access to fair and affordable credit. On March 27th, 2020, Congress signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act into law, which was a bill created to provide support and relief for American workers, families, and small businesses. This newly proposed Act also provides guidelines on how creditors and data furnishers should report information to credit bureaus, to ensure that lenders remain flexible as consumers navigate the current pandemic. The Act requires that creditors must provide “accommodations” to consumers affected by COVID-19 during “covered periods.” According to the National Credit Union Administration, “The CARES Act requires credit reporting agency data providers, including credit unions, to report loan modifications resulting from the COVID-19 pandemic as ‘current’ or as the status reported before the accommodation unless the consumer becomes current,” as stated in Section 4021. Section 4021 of the CARES Act also provides other guidelines for accurate data reporting. During this time, lenders can use attributes to determine risk during COVID-19. Attributes within custom scores can also capture consumer behavior and help lenders determine the best treatments. Payment attributes, debt burden attributes, inquiry attributes, credit extensions and originations are all key indicators to keep an eye on at this time as lenders monitor risk in their portfolios. Listen in as our panel of experts explore the areas related to data reporting that impact you the most. In addition to a regulatory update and discussions around programs to help support consumers and businesses, we’ll also review what other lenders are doing and early indicators of credit trends. You’ll also be able to walk away with key strategies around what your organization can do right now. Discover the latest information on: Data reporting and CDIA regulations Regulatory updates, including the CARES Act, a breakdown of Section 4021, and guidelines to remember Credit attribute trends and highlights, treatment of scores and attributes, as well as recommended attributes Watch the webinar

With new legislation, including the Coronavirus Aid, Relief, and Economic Security (CARES) Act impacting how data furnishers will report accounts, and government relief programs offering payment flexibility, data reporting under the coronavirus (COVID-19) outbreak can be complicated. Especially when it comes to small businesses, many of which are facing sharp declines in consumer demand and an increased need for capital. As part of our recently launched Q&A perspective series, Greg Carmean, Experian’s Director of Product Management and Matt Shubert, Director of Data Science and Modelling, provided insight on how data furnishers can help support small businesses amidst the pandemic while complying with recent regulations. Check out what they had to say: Q: How can data reporters best respond to the COVID-19 global pandemic? GC: Data reporters should make every effort to continue reporting their trade experiences, as losing visibility into account performance could lead to unintended consequences. For small businesses that have been negatively affected by the pandemic, we advise that when providing forbearance, deferrals be reported as “current”, meaning they should not adversely impact the credit scores of those small business accounts. We also recommend that our data reporters stay in close contact with their legal counsel to ensure they follow CARES Act guidelines. Q: How can financial institutions help small businesses during this time? GC: The most critical thing financial institutions can do is ensure that small businesses continue to have access to the capital they need. Financial institutions can help small businesses through deferral of payments on existing loans for businesses that have been most heavily impacted by the COVID-19 crisis. Small Business Administration (SBA) lenders can also help small businesses take advantage of government relief programs, like the Payment Protection Program (PPP), available through the CARES Act that provides forgiveness on up to 75% of payroll expenses and 25% of other qualifying expenses. Q: How do financial institutions maintain data accuracy while also protecting consumers and small businesses who may be undergoing financial stress at this time? GC: Following bureau recommendations regarding data reporting will be critical to ensure that businesses are being treated fairly and that the tools lenders depend on continue to provide value. The COVID-19 crisis also provides a great opportunity for lenders to educate their small business customers on their business credit. Experian has made free business credit reports available to every business across the country to help small business owners ensure the information lenders are using in their credit decisioning is up-to-date and accurate. Q: What is the smartest next play for financial institutions? GC: Experian has several resources that lenders can leverage, including Experian’s COVID-19 Business Risk Index which identifies the industries and geographies that have been most impacted by the COVID crisis. We also have scores and alerts that can help financial institutions gain greater insights into how the pandemic may impact their portfolios, especially for accounts with the greatest immediate exposure and need. MS: To help small businesses weather the storm, financial institutions should make it simple and efficient for them to access the loans and credit they need to survive. With cash flow to help bridge the gap or resume normal operations, small businesses can be more effective in their recovery processes and more easily comply with new legislation. Finances offer the support needed to augment currently reduced cash flows and provide the stability needed to be successful when a return to a more normal business environment occurs. At Experian, we’re closely monitoring the updates around the coronavirus outbreak and its widespread impact on both consumers and businesses. We will continue to share industry-leading insights to help data furnishers navigate and successfully respond to the current environment. Learn more About Our Experts Greg Carmean, Director of Product Management, Experian Business Information Services, North America Greg has over 20 years of experience in the information industry specializing in commercial risk management services. In his current role, he is responsible for managing multiple product initiatives including Experian’s Small Business Financial Exchange (SBFE), domestic and international commercial reports and Corporate Linkage. Recently, he managed the development and launch of Experian’s Global Data Network product line, a commercial data environment that provides a single source of up to date international credit and firmographic information from Experian commercial bureaus and Tier 1 partners across the globe. Matt Shubert, Director of Data Science and Modelling, Experian Data Analytics, North America Matt leads Experian’s Commercial Data Sciences Team which consists of a combination of data scientists, data engineers and statistical model developers. The Commercial Data Science Team is responsible for the development of attributes and models in support of Experian’s BIS business unit. Matt’s 15+ years of experience leading data science and model development efforts within some of the largest global financial institutions gives our clients access to a wealth of knowledge to discover the hidden ROI within their own data.  

This is the final part of a three part series of blog posts highlighting key focus areas for your response to the COVID-19 health crisis: Risk, Operations, Consumer Behavior, and Reporting and Compliance. For more information and the latest resources, please visit Look Ahead 2020, Experian’s COVID-19 resource center with the latest news and tools for our business partners as well as links to consumer resources and a risk simulator. To read the first post, click here. To read the second post, click here.  Consumer Behavior Changes Consumers will be hit hard by the economic fallout from the virus. They’ll need to manage available credit and monthly income to bridge the gap when many people are faced with lost wages, tips and the ability to work. Often, the only way to monitor these short-term risks is with trended credit attributes, from both traditional and alternative data sources. These attributes were developed to provide additional insights into how consumer credit usage is trending over time. Is their debt and spending increasing? Have their credit lines been reduced? Have they historically been a transactor but have now started revolving balances? Could the account be a synthetic identity, set up for intentional misuse of credit? The most predictive attributes available in these times can transform how you can identify and respond to risk.   Reporting and Compliance The regulatory environment is continuing to shift. There are continuous changes to compliance in the digital space for emerging channels and applications. There will be impacts to credit reporting and processes that may echo the response from other major natural disasters. The good news is that the framework developed for Comprehensive Capital Analysis and Review (CCAR) stress testing can be used to run scenarios and understand impacts. Although bank capital is very strong, additional regulation, such as the Current Expected Credit Losses (CECL), with all the latest shifts around compliance, may continue to increase the pressure on financial institutions. Having an adaptable process to forecast and stress-test scenarios to adjust capital requirements, especially in light of government fiscal and monetary stimulus measures, will be at the core of managing financial stability during a period of changes.   Conclusion We need to brace for the pending recession after the longest economic expansion in our lifetimes. These are the times where organizations may struggle to survive or thrive in the face of adversity. This is the time to act on your strategic plan, lean on your strategic partners, and leverage industry leading data and capabilities to soften the landing and thrive in the next phase of growth. Let’s prepare and get through this, together.   Learn More

The U.S. Senate Banking Committee passed a financial regulatory relief bill (S. 2155) in December 2017 aimed at reducing regulatory burdens on community banks, credit unions and smaller regional banks.  Committee Chairman Senator Mike Crapo (R-ID), sponsored the bill, which has strong bipartisan support, with 23 cosponsors (11 Republicans and 12 Democrats and an independent). The package is likely to be considered by the full Senate in early 2018. The legislation includes two provisions related to consumer credit reporting.  Both were adopted, in part, in reaction to the Equifax data breach. As the bill moves through the legislative process during 2018, it will be important for all participants in the consumer credit ecosystem to be aware of the potential changes in law. One provision deals with fraud alerts and credit freezes for consumers and the other deals with how medical debt is processed for veterans who seek medical treatment outside the VA system. Credit Freezes The bill amends the Fair Credit Reporting Act to provide consumers with the ability to freeze/unfreeze credit files maintained by nationwide credit reporting agencies at no cost, and would extend the time period for initial fraud alerts from 90 days to one year. The credit freeze provisions would also establish a process for parents and guardians to place a freeze on the file of a minor at no cost. The bill would require the nationwide credit reporting agencies to create webpages with information on credit freezes, fraud alerts, active duty alerts and pre-screen opt-outs and these pages would be linked to the FTC’s existing website, www.IdentityTheft.gov.  The credit freeze and minor freeze provisions would preempt State laws and create a national standard. Protections for Veterans The bill also incorporates a provision that would prohibit credit bureaus from including debt for health-care related services that the veteran received through the Department of Veterans Affairs’ Choice Program. The provision would cover debt that the veteran incurred in the previous year, as well as any delinquent debt that was fully paid or settled. The legislation would require a consumer reporting agency to delete medical debt if it receives information from either the veteran or the VA that the debt was incurred through the Veteran’s Choice Program. What’s next The bill now awaits consideration before the full Senate. Senate Majority Leader Mitch McConnell has said that the bill is a “candidate for early consideration” in 2018, but the exact timing of floor debate has yet to be scheduled. Once the package passes the Senate, it will need to be reconciled with the regulatory relief package that was passed by the House last spring.