The NCUA joined other federal financial regulators in issuing a statement on the use of alternative data in underwriting by credit unions, banks and non-bank financial firms.
In short, the agencies stated alternative data, when used in a manner consistent with consumer protection laws, can improve the speed and accuracy of credit decisions and may help institutions evaluate the creditworthiness of consumers who otherwise might not be able to obtain credit.
Alternative data includes information not typically found in consumers’ credit reports or customarily provided by consumers when applying for credit.
The statement notes the benefits that using alternative data may provide to consumers, such as expanding access to credit and enabling consumers to obtain additional products and more favorable pricing and terms. The statement explains that a well-designed compliance management program provides for a thorough analysis of relevant consumer protection laws and regulations to ensure firms understand the opportunities, risks and compliance requirements before using alternative data.