On July 3rd, the CFPB released a Report on the Use of Remittance Histories in Credit Scoring (the “Report”). Section 1073(e) of the Dodd-Frank Wall Street Reform and Consumer Protection Act required the CFPB Director to study the feasibility of and impediments to using remittance transfer information (i.e., information regarding electronic fund transfers made by U.S. consumers to recipients abroad) in credit scoring, ostensibly with the intention of determining the utility of such information as a way to enhance such consumer credit scores, and/or increase the numbers of persons for whom such scores could be assigned. The CFPB issued a report in fulfillment of that requirement in July, 2011.
In that report the CFPB stated it would conduct additional research to better explore the potential for remittance information to enhance credit scores, either by: (i) improving the ability of the credit scores to more accurately predict credit risk, or (ii) raising the scores of those consumers who send remittance transfers. This new Report discusses the CFPB’s empirical research efforts and results to date specific to these topics.
Regarding the first topic, the CFPB’s analysis suggests that remittance history information would provide insufficient additional benefit to the predictiveness of a credit scoring model to permit scores to be generated for consumers whose credit file alone would otherwise be unscorable.
With respect to the second topic, the Report concludes that it is unlikely that including remittance transfer information in a credit scoring process will increase the credit scores of consumers who send remittance transfers. In fact, the inclusion of such information was seen to have, if anything, the opposite effect, though the reasons for such results were seen as having less to do with the remittance information itself as potentially other selection effects.
In the course of its analysis of the second topic, the CFPB found that the observed credit predictive value of remittance transfer information varied according to the locations to which the remittances were actually sent. This finding led the CFPB to warn of a potential fair lending danger in using such geographic destination information for credit scoring models or otherwise in making credit decisions, in that such use may have a disproportionately negative impact on certain racial or national origin groups, and that a lender’s consideration of the geographic destination of an applicant’s remittances could itself constitute discrimination based on national origin.