Credit Scoring in the Twenty-First Century

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In this issue:

- Introduction

- The Issue: Operational Risks Posed by Reliance on a Single Third-Party Credit Scoring Provider

- Risks to Financial Regulator

- Obstructed Oversight 4 Political Risk and the Need to Temper Trust with Verification

- Risks to the Lending Industry

- Obstructed Model Risk Management

- Potential for Scarcity of Supply

- Safety and Soundness Fallout

- Risks to Consumers

- Inequality in Eligibility for Affordable Credit from Mainstream Consumer Credit Sources

- Unavailability of Key Data to Access Consumer Credit

- Lost Opportunities for Beneficial Consumer Financial Education

- Risks to the U.S. Economy

- The Solution: Acceptance of Greater Diversity in the Provision of Third-Party Credit Scores

- Open the Consumer Credit Markets to Non-Legacy Providers of Third-Party Credit Scores to Provide Innovative and Transparent Credit Score Models

- Expanded Access to Affordable Credit

- Greater Predictability and Improved Risk Assessment Accuracy

- Reduced Operational Risk

- Current Barriers to Acceptance of Diversity among Providers of Third-Party Credit Scores

- Tradition

- Unintentional Legacy System Brand Endorsement

- Actions Financial Regulators May Take to Welcome Non-Legacy Providers of Third-Party Credit Scores

- Why the Time Is Ripe for an Improvement in the Third-Party Credit Score System

- Conclusion

- Excerpt from: Tradition:

When third-party credit score models were first introduced in the twentieth century, one entity provided virtually all such scores, as is often the case with a nascent industry. Over time, that entity became synonymous with the term “credit score,” just as “Xerox®” has (improperly) become interchangeable with the term “copy,” and the word “Kleenex®” is frequently used by consumers, albeit improperly, to refer to “facial tissue.” References to this one legacy third-party credit scoring entity thus became pervasive in the consumer credit marketplace as third-party credit scores became integral to the largely automated underwriting process.

Please see full newsletter below for more information.

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Topics:  Credit Reports, Financial Regulatory Reform, Lenders, Risk Management

Published In: General Business Updates, Finance & Banking Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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