CFPB supports use of alternative data with no-action letter to online lender Upstart
The new credit-determining methods will be evaluated.
The Consumer Financial Protection Bureau (CFPB) issued a no-action letter to online lending service Upstart, guaranteeing that the agency will not pursue regulatory action against the company’s new financial products.
Upstart is an online lending marketplace that provides personal loans, refinancing and debt consolidation by analyzing traditional and non-traditional data, such as education and employment, to rate creditworthiness.
Alternative data could also include bill payments for mobile phones and rent, electronic transactions such as deposits and withdrawals, and other information that may be less closely tied to a person’s financial conduct.
The CFPB takes action against individuals and companies in breach of the law, while those affected are often awarded financial compensation as a result of these violations.
The no-action letter is the first ever commissioned by the CFPB. As part of the agreement, Upstart must regularly report lending and compliance information to the CFPB to help mitigate consumer risk and assist in determining the implications of using alternative data resources in credit issuance decision-making.
Many consumers are credit invisible or lack sufficient credit history to be eligible for loans.
The processes implemented and shared by Upstart will divulge how the lender decides which loans to approve and how these types of practices can better work to help traditionally underserved populations.
While the CFPB’s letter applies to Upstart’s model for underwriting and pricing, it is not an endorsement of the use of these techniques and is only subject to the specific facets and circumstances of the agreement.
Earlier this year, in February, the CFPB started an inquiry into the use of alternative data to evaluate creditworthiness and develop resources to support consumers with a limited credit history.
The inquiry also considered the use of emerging technologies for the purpose of underwriting, including increased computing power and the expanded use of machine learning to mine extremely large datasets.
During the first six months of 2017, the CFPB recovered $14 million for more than 104,000 harmed consumers.
Have you received money for a compensation case? If you’re concerned about the authenticity of a check you receive, you can visit the CFPB’s payments by case page on the watchdog’s website to confirm its validity.