| Entities | Federal Financial Institutions Examination Council (FFIEC) (3) |
| Topics and Issues |
In January 2000, the Federal Financial Institutions Examination Council (FFIEC) issued an Advisory Letter to its regulated entities noting that the agencies that make up the Council (Federal Reserve, FDIC, NCUA, OCC, and the CFPB)
are aware that over the last year some financial institutions have stopped reporting certain items of customer credit information to consumer reporting agencies (credit bureaus). Specifically, certain large credit card issuers are no longer reporting customer credit lines or high credit balances or both. In addition, some lenders, as a general practice, have not reported any loan information on subprime borrowers, including payment records. The Agencies have been advised that the lack of reporting is occurring primarily because of intense competition among lenders for customers.
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Accordingly, financial institutions that rely on credit bureau information as a tool in their underwriting and account management functions, whether manual or automated, should have processes in place to effectively identify and compensate for missing data in credit bureau reports and models. Actions financial institutions should take, if appropriate, to address this issue include the following:
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- Assess the effect of incomplete credit bureau information on credit decision processes, including the impact on the predictive ability of credit scoring and other account acquisition and management models. Financial institutions using credit bureau scores and other generic or pooled-data scoring models should obtain information about the impact of the omitted data on the models’ predictive capabilities directly from the vendors for such models.
- Develop and implement strategies, such as independent verification of missing data, to mitigate the effect of incomplete credit information. For example, changing cut-off scores, neutralizing or substituting model characteristics, and revalidating or redeveloping models may be appropriate.
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See, also OCC Bulletin 2000-3. Presaging this 2020 FFEIC announcement was a 1999 speech by John D. Hawke, Jr., the Comptroller of the Currency, who addressed a conference of the Consumer Bankers Association. In his prepared remarks, Hawke said that there are
Two particularly objectionable practices have recently come to our attention. The first involves financial institutions that, without letting customers know about it, have stopped reporting consumer credit lines, high credit balances, and payment records to credit bureaus. Some lenders, in particular, appear not to be reporting their payment experiences with subprime borrowers in order to protect against good customers being picked off by the competition — even though these customers may have been lured into a high-rate loan as a way of repairing a bad credit history. These high-interest borrowers may be rudely surprised when they discover that their good credit history as a subprime borrower isn’t reflected in their credit files when they seek credit in the future and that they are unable to obtain better rates based on their good credit record.
Failure to report may not be explicitly illegal. But it can readily be characterized as unfair; it may well be deceptive, and — in any context — it’s abusive. OCC staff has been discussing this issue with the other banking agencies and with the Federal Trade Commission staff, and is working to develop a joint supervisory response to this practice. But that may not be the end of it: Congress is already homing in on the problem.