Regulators Appear to Endorse Alternative Credit Scoring
A joint statement from the nation’s biggest banking regulators expressed cautious optimism toward emerging decisioning models that could generate more auto loans.

Kathy Kraninger is director of the Consumer Financial Protection Bureau, which joined four other federal banking regulators in offering a largely positive opinion of alternative credit data in a joint statement this week.
WASHINGTON — The Consumer Financial Protection Bureau and four other federal regulatory agencies released a joint statement offering tempered support for the use of alternative data in credit decisioning processes, including applications for auto loans.
Alternative credit data focuses less on credit history and more on cash flow, measuring activity relating to “nonfinancial” information such as bill and rental payments and bank account balance history. The use of alternative data in “second look” platforms for applicants who fail to qualify under traditional scoring models has grown over the past decade as creditors have sought new ways to reach more borrowers.
Read: Auto Loans and Leases Up 1% in Q3
The CFPB was joined as a signatory by the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency, and the National Credit Union Administration.
“Using alternative data may enable consumers to obtain additional products and/or more favorable pricing/terms based on enhanced assessments of repayment capacity,” the statement reads, in part. “These innovations reflect the continuing evolution of automated underwriting and credit score modeling, offering the potential to lower the cost of credit and increase access to credit.”
The alternative model generated 27% more approvals and reduced annual percentage rates by an average of 16%.
The statement follows the August release of a CFPB-commissioned study, undertaken in partnership with Upstart Network, an alternative scoring technology provider, that set out to compare decisioning results from traditional and alternative models.
Analysts found the alternative model generated 27% more approvals and reduced annual percentage rates by an average of 16%; no bias toward any race, ethnicity, or gender was detected.
However, “As with prior developments in the evolution of credit underwriting, including the advent of credit scoring, the use of alternative data and analytical methods also raises questions regarding how to effectively leverage new technological developments that are consistent with applicable consumer protection laws,” the regulators noted, listing unfair, deceptive, or abusive acts or practices standards and the Fair Credit Reporting Act as examples.
Originally posted on F&I and Showroom
More Industry

RV Group Expands Carolina Footprint
Blue Compass RV Columbia Northeast is the 13th RV dealership owned by Blue Compass in the Carolinas.
Read More →
Agent Acumen
An Agent Summit panel of people who’ve been supporting auto dealers for years gave both timely and timeless advice for those starting out or mulling the prospect.
Read More →
Missed Maintenance Creates Opportunity
As families get back on the road and into daily school routines, service drives have an opportunity to capture customers who are behind on recommended vehicle maintenance.
Read More →
Mitsubishi Unveils U.S. Plan
The automaker announced a strategy that includes an expanded lineup and dealership presence, along with more ‘rugged’ and electric models.
Read More →
Selling to Grow
The question of whether you should sell your agency and if so, when, is up to you. But it’s a question worth asking to ensure you keep the business on the right path for yourself, employees and clients.
Read More →
Recalled Vehicles Hit 5-Year High
Though the number of events has fallen so far this year, impacted units are up significantly. Meanwhile, regulators consider consumer notification changes.
Read More →
Auto Group Acquires Top-Performing Rooftop
Car Pros sold its Kia Huntington Beach location to Sutherlin Automotive Group, marking the buyer’s third location in Southern California.
Read More →
China as Pacesetter
Automotive leaders huddled on where North America stands in the global picture and how it can strengthen its position against the Asian juggernaut’s surging industry.
Read More →
BMW Concept Car Makes Fuel to Burn
The prototype developed in concert with a South Carolina university engineering team generates more solar energy than it uses in a typical daily commute.
Read More →
South Carolina Auto Group Downsizes
Florida-based group Holler-Classic has acquired four rooftops, its first in South Carolina, from Dick Smith Automotive Group.
Read More →