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Cordray Offers New Ideas for Consumer Lending

“Our goal is to put consumers first and provide them with more tools to take control of their financial lives,” said Richard Cordray, Consumer Financial Protection Bureau Director. He spoke at the Lendit USA Conference in the Jacob Javits Center, New York on Monday. This is a two-day conference for established and emerging online lending companies and investors

Cordray said he wants to encourage consumer-friendly innovations in consumer finance. This would include carefully considering the issue of consumer control over personal financial data. He also mentioned that the CFPB is looking into the benefits and risks of using unconventional sources of data to underwrite loans as a way to open access to credit for more consumers.

“After crunching the numbers, we estimate that 26 million Americans are “credit invisible,” he said, “meaning they have no credit history at all. Another 19 million people have credit histories that, under most models, are too limited or have been inactive for too long to generate a reliable credit score.”

 He said there are about 45 million adults nationwide who fall into these two categories. “That is simply a tragedy in a modern economy and a modern financial system like ours,” he said, “and we all need to think harder about what we can do to address it.”

He explained that alternative data may be obtained from sources such as rent or utility payments, which in general have not been traditionally defined as “credit.”  It may draw from electronic or other records of transactions, such as deposits, withdrawals, or account transfers. And it might include other personal information, such as the consumer’s occupation or educational attainment.

Other forms of alternative data may spring from new sources that never existed before, such as the use of mobile phones or the Internet. “By filling in more details of people’s financial lives, this information may paint a fuller and more accurate picture of their creditworthiness,” he said. “So adding alternative data into the mix may make it possible to open up more affordable credit for millions of additional consumers.”

He said that these approaches also pose risks, and the CFPB wants to know more about these risks and how they can be mitigated or minimized. “On the whole, we are encouraged by the potential for alternative data underwriting to benefit the very consumers that the fair lending laws are designed to protect,” he said.

In considering any new services, Cordray said there are two principles the CFPB seeks to uphold. “First, we believe in a level playing field for all providers of consumer financial products and services….. whether they are large banks or fintech startups.”  He said that everyone must be held to the same standards of compliance with the law.

He also urged urge all providers to make sure that consumer protections are built into emerging products and services. “Consumer protections and compliance should not be mere add-ons or afterthoughts,” he said. “They must be essential elements of the business model, from beginning to end.”  

Consumers should be able to understand and access the kinds of responsible products they can rely on throughout their financial lives, he said, and the information consumers need to make decisions about their economic opportunities must be accessible, accurate, and reliable. 

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