February 16, 2017

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FSR Testifies at CFPB Field Hearing on Importance of Alternative Data as Tool for Innovation

"It’s exciting because there is a lot of innovation here, innovation that should help more people get access to the kinds of financial services products they need from the regulated lending community."

FSR Testifies at CFPB Field Hearing on Importance of Alternative Data as Tool for Innovation
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FSR Testifies at CFPB Field Hearing on Importance of Alternative Data as Tool for Innovation

WASHINGTON, D.C. – The Financial Services Roundtable (FSR) today testified on the importance of alternative data as a tool for innovation at a Consumer Financial Protection Bureau (CFPB) field hearing in Charleston, WV. Francis Creighton, FSR’s Executive Vice President of Government Affairs, delivered the following opening statement:

Thank you for having me here this morning. I work at the Financial Services Roundtable, a trade association of about 100 of the 150 largest financial services companies in the country, including banks, insurance companies, payments companies, investment firms and others.

In my world this counts as an exciting issue. And it’s exciting because there is a lot of innovation here, innovation that should help more people get access to the kinds of financial services products they need from the regulated lending community.

First let me note that financial institutions are both furnishers of information and consumers of information. I am here today to focus on how financial institutions use information they obtain from others to make lending and other financial decisions.

Financial institutions use data and information to assess how people have handled their bills in the past because that can be predictive for how they will handle bills in the future. We use this information to judge whether a potential customer will be able to meet their future obligations.

So from that perspective, the more information the better. Having more information gives us a better ability to determine whether we should make a loan or not. We welcome more data and are working with our partners in the consumer data industry to better serve both our current and future customers.

However, we need to make sure that the data we use for lending decisions are fair, accurate and verifiable, and that consumers have the ability to dispute information that they believe may be inaccurate. The Fair Credit Reporting Act (FCRA) is a strong protector of fairness, accuracy and data integrity.

But given that more data is more helpful, we should also remember that we get data through a system where furnishers voluntarily provide the information and consumers of information voluntarily use it. Individual credit bureaus work to improve their data offerings to financial institutions and other consumers of information and that innovation is what makes the process better. We would be very concerned about any efforts to mandate what data we can and cannot use.

Further, what makes our system strong is that when we use data, we have access to both positive information about a consumer’s payment history, as well as negative information. Both types of data play a role in assessing a consumer’s situation, and limiting the type of data we can use will be counterproductive.

We also want to note that as new data become available, we have to examine the implications of that data not only on its predictiveness, but also for implications on fair lending and other regulatory grounds. For example, if some new data were more available for urban rather rural families, that could result in thinner files for rural dwellers, with the attendant impacts that could have on underwriting decisions. As the Bureau examines the implications of using new types of data, we ask that these potential unintended consequences be kept in mind.

Finally, I’d like to note that data are used for reasons beyond whether we should grant credit. For example, our members may use data not covered by FCRA, including some forms of “alternative” data for purposes like fraud protection, identity resolution and verification. Using data for lending and other FCRA-covered purposes should not be conflated with data that may be used for these non-FCRA purposes.

Again, thank you for having me at this hearing and I look forward to working with the CFPB and other stakeholders moving forward.

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About The Author

The Financial Services Roundtable represents the largest integrated financial services companies providing banking, insurance, payment and investment products and services to the American consumer. Member companies participate through the Chief Executive Officer and other senior executives nominated by the CEO. FSR member companies provide fuel for America’s economic engine, accounting for $92.7 trillion in managed assets, $1.2 trillion in revenue, and 2.3 million jobs.

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