Recently, the Consumer Financial Protection Bureau (CFPBP) released its 2018 Fair Lending Report to Congress, and reported on several topics, including innovation in expanding credit access.
The CFPB is the federal agency thatmakes sure banks, lenders and other financial companies treat consumers fairl.
In the first of a multi-part series, we will address the CFPB’s support of companies providing creative credit solutions to underserved populations.
According to the report, the CFPB prioritized innovation in part to help expand fair, equitable, and nondiscriminatory access to credit to those consumers who typically struggle to get such access.
Leading the effort is the CFPB’s Office of Innovation, which helps the agency fulfill its statutory mandate to promote competition, innovation, and consumer access within financial services.
To achieve this goal, the new office focuses on creating policies to facilitate advances, engaging with entrepreneurs and regulators, and the identification of outdated and unnecessary regulations.
The Office of Innovation continues to monitor its first “no-action letter,” issued in 2017 to Upstart, a company using alternative and non-traditional data to make credit decisions. Upstart also enables people with limited credit history to get credit or get it on better terms.
A no-action letter signifies that CFPB staff has no present intent to recommend initiation of supervisory or enforcement action against Upstart with respect to the Equal Credit Opportunity Act.
Upstart is an online lending marketplace that provides personal loans using non-traditional variables, such as education and employment, to predict creditworthiness.
Founded by former Google employees and featuring Dallas Mavericks owner Mark Cuban as a major investor, Upstart leverages artificial intelligence and machine learning to price credit and automate the borrowing process. The company has demonstrated strong credit performance, maintains one of the industry’s highest consumer ratings according to leading consumer review sites, and has posted $3.8 billion in loan originations, 60 percent of which have been fully automated.
In addition to its direct-to-consumer lending platform, Upstart provides technology to banks, credit unions, and other partners via a “Software-as-a-Service” offering called “Powered by Upstart.”
As a condition of the no-action letter, Upstart will regularly report lending and compliance information to the CFPB to mitigate risk to consumers and aid the Bureau’s understanding of the real-world impact of alternative data and modeling techniques on lending decision-making.
Alternative data could include things such as bill payments for mobile phones and rent, electronic transactions such as deposits and withdrawals.