The Regulatory Roundup is a quarterly newsletter from Experian focusing on Government & Regulatory affairs.
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Late breaking news

Alternative data legislation reintroduced in Congress

credit-invisible.jpgIn a recent report, the Consumer Financial Protection Bureau (CFPB) estimated there that are more than 45 million “credit invisible” consumers in the US. This means that they either have no credit history or a credit file too thin to receive access to mainstream credit products.  This issue is not just for those making consumer loans, as it can also impact the ability of small business lenders to extend credit to entrepreneurs with thin-files. This is especially true for sole proprietorships and partnerships, when business lenders may rely on a mix of commercial credit and the personal credit history of the small business owner.

While credit invisibles may not have a traditional credit history, many make their cable, utility and mobile phone payments on time. However, this on-time payment data is not being included in credit files of the nationwide credit reporting agencies. Historically, telecom and utility companies have only reported instances when a consumer is behind on payments or an account has been turned over to collections. This means that credit invisibles may have negative data from telecom and utility companies in their file, but are unable to build their credit file with positive data even if they make on-time payments each month.  There is a detailed track record of research showing how the inclusion of alternative data will enable millions of credit invisible American consumers who have a proven track record of meeting financial obligations to access mainstream credit. A recent study by PERC and the Brookings Institution found that when energy utility and telephone firms report timely and late payment data alike, those who are deemed credit invisible shrunk to around 5 million.

Congress has taken notice and introduced legislation to help address this discrepancy. On December 3 the Credit Access and Inclusion Act (H.R. 4172 and S.2355) was reintroduced in Congress, with Representatives Mike Fitzpatrick (R-Penn.) and Keith Ellison (D-MN) taking the lead in the House and Senators Mark Kirk (R-Ill.) and Joe Manchin (D-WVA) taking up the effort in the Senate.

The bipartisan bill would amend the Fair Credit Reporting Act to make clear that utilities, telecommunication and rental companies can report on-time payment histories and positive data to the nation’s credit reporting bureaus, rather than just late payments or collection actions that they are currently furnishing. The legislation would not require these companies to report information, but it would  reassure these entities that there are no regulatory barriers to reporting on-time payment information.

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Treasury Department seeks additional comments on AML rule update

laundering-banner.jpgIn December 2015, the US Treasury Department’s Financial Crimes Enforcement Network (FinCEN) announced that it would be collecting additional comments on the August 2014 proposed rule that would expand the customer due diligence requirements for financial lenders. The comment period closed on January 25, 2016 and FinCEN will use the new comments as part of a Regulatory Impact Assessment that it must conduct.   

As proposed, the rules contain explicit customer due diligence requirements and include a new regulatory requirement to identify beneficial owners of legal entity customers (i.e. small businesses to whom the bank lends), subject to certain exemptions. a beneficial owner is defined as (1) each individual having a direct or indirect 25 percent or more ownership interest in the legal entity that is the actual customer or client of the financial institution and (2) an individual having significant management responsibility over the legal entity customer (individuals in control), such as an officer, general partner, or managing member.

In addition to the new requirement to identify and verify beneficial owners, the proposed rules also reinforce and clarify other elements of AML that were generally implied by existing regulations, but never clearly or directly stated. They include: customer identity verification; understanding the nature and purpose of the specific customer relationship; and ongoing monitoring of customer information.

Experian will continue to monitor this rulemaking and report back on any impact that it may have on small business lenders.

California regulator announces inquiry into Online Marketplace Lenders

dbo-logo.jpgOn December 11, the California Department of Business Oversight (DBO) announced an inquiry into the growing marketplace lending industry.

The DBO sent letters seeking data and information from 14 online marketplace lenders operating in California. The inquiry in California follows several federal policymakers—including the US Treasury, Congress and Federal Trade Commission—that have reviewed potential consumer protection concerns related to the growing market segment. In its press release, DBO Commissioner Jan Lynn Owen said that online lenders are filling a need in today’s economy, but that the DBO wants to assess the effectiveness of their regulatory structure as it relates to these lenders. As was the case with the Treasury Department RFI, the DBO sought comments on how marketplace lenders conduct underwriting and verify a borrower’s identity. 

The inquiry covers both consumer and business loans. Experian will continue to monitor this inquiry, as well as other interest by regulators into the online marketplace lending environment. 


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