Use of Alternative Data in Credit Underwriting

Dear Board of Directors and Chief Executive Officer:

On December 3, 2019, the NCUA and four other federal financial regulatory agencies issued a joint statement on the use of alternative data that financial institutions and other financial firms use, or may use, in determining borrowers’ creditworthiness.¹

Alternative data includes information not typically found in consumers’ credit reports or customarily provided as part of applications for credit.  Use of alternative data may improve the speed and accuracy of credit decisions and may help “evaluate the creditworthiness of consumers who currently may not have access to credit in the mainstream credit system.”

The joint statement focuses on the benefits that using alternative data can provide to consumers, such as expanding access to credit and enabling them to obtain additional products and more favorable pricing and terms.  It also reminds financial institutions to be aware of the relevant consumer protection laws, including, as appropriate, fair lending laws, before using alternative data.  A well-designed compliance management program includes appropriate controls, monitoring, and testing to mitigate and address consumer protection risks.²

Please contact your NCUA regional office or state supervisory authority if you have any questions.