Alternative Credit Data Can Help Consumers and Lenders Flourish
ATLANTA–(BUSINESS WIRE)–In anticipation of pending changes in regulations coming from the
Consumer Financial Protection Bureau (CFPB),
released revealing data today in the latest Underbanked Index. Focused
on the consumer’s average ability to repay (ATR), the FactorTrust Index
shows how deserving consumers will be more likely to obtain loans when
alternative data is taken into consideration. FactorTrust is the leading
provider of non-prime consumer data, analytics and risk scoring
solutions for those underserved by traditional banking channels.
The CFPB’s proposals
under consideration are expected to require lenders to take new
steps to ensure consumers can repay short term loans, vehicle title
loans, deposit advance products, certain installment loans and open-end
loans. For each loan, lenders will have to take into account the
consumer’s income, major financial obligations and borrowing history,
while considering a 60-day “cooling off period” between loans. The
proposals, however, do not adequately address a large percentage of the
underbanked population, potentially harming those consumers who most
need such loans.
“Nearly one-third of the consumers in the FactorTrust database would be
unable to get a loan without waiting. That is going to have an enormous
impact on consumers’ pocketbooks and on the lenders who will be unable
to serve them,” says Greg Rable, CEO of FactorTrust. “In order to
maintain business growth while adhering to the CFPB’s rules, alternative
credit data will be a critical component in analyzing a consumer’s ATR.
The relationship of debt-to-income and default rate can be more
accurately gauged when viewed through the prism of alternative credit
data, giving a more accurate picture of a consumer’s true ATR.”
Some key takeaways from the most recent Underbanked Index, relevant
to the pending CFPB changes, include:
Optimizing with Alternative Data: 31 percent of applicants
would be eligible to borrow after considering the “cooling off” period
and residual income requirements. However, applicant eligibility could
reach as high as 40 percent, if lenders use alternative data to
optimize underwriting decisions and dynamically adjust loan amounts,
accommodating limited residual income.
Housing: Underbanked consumers who own their own homes live in
geographies where housing costs are roughly $154 per month lower than
the national average. Underbanked consumers who rent live in
geographies where rent costs are $26 per month lower than the national
Timing: The fourth quarter experiences the highest rate of
consumers falling within the “cooling off period,” which is the time
when demand for consumer loans is highest.
“While the CFPB’s proposals under consideration are designed to
ultimately protect consumers, many good risk customers may have limited
capacity. It becomes even more important for lenders to blend
alternative credit risk and capacity scores to help them adjust their
offer so that qualified underbanked consumers will receive the loans
they need and deserve,” says Rable.
An infographic summarizing the most relevant results can be downloaded here.
To receive the Underbanked Index reports automatically via email,
interested parties can sign up at ws.FactorTrust.com/UnderbankedIndex,
or simply send an email to media@FactorTrust.com.
About The FactorTrust Underbanked Index
The FactorTrust Underbanked Index provides a range of data points
including demographic, loan behavior, seasonal effects and others, to
help shed light on underbanked consumers. The Index assists financial
institutions, associations, analysts and media interested in tracking,
benchmarking or understanding the needs of underbanked consumers. Data
is based on expert analysis from FactorTrust’s database of millions of
records related to underbanked consumers collected by the company each
quarter. For more information, please visit ws.FactorTrust.com/UnderbankedIndex.
FactorTrust, The Alternative Credit Bureau, helps lenders manage the
credit lifecycle of underbanked consumers using unique alternative
credit information not available from the Big Three bureaus, enabling
them to offer non-prime consumers the credit they deserve. Nearly 100
million U.S. adults have non-prime scores. Leveraging the company’s
credit information, lenders can more accurately predict future borrowing
behavior, credit performance and risk scoring for this growing segment.
Headquartered in Atlanta, the experienced FactorTrust team of predictive
analytics specialists, statisticians and financial industry experts has
delivered unique data and valuable insight to lenders throughout the
U.S. for 10 years. For more information on the quarterly FactorTrust Underbanked
Index or the company itself, visit www.FactorTrust.com.
Trevelino/Keller Communications Group
Savannah Weeks, 404-214-0722