Alternative Data in Financial Services (CRS Report for Congress)
| Release Date |
Revised Nov. 7, 2024 |
| Report Number |
IF11630 |
| Report Type |
In Focus |
| Authors |
Karl E. Schneider |
| Source Agency |
Congressional Research Service |
| Older Revisions |
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Summary:
Alternative data generally refers to information used to
determine a consumer’s creditworthiness that the national
consumer reporting agencies (CRAs)—Equifax, Experian,
and TransUnion—have not traditionally used to calculate
credit scores. These CRAs generally create consumer
reports with historical information about repayment on
credit products such as mortgages, student loans, credit
cards, and auto loans. Credit applications, bankruptcies, and
debts in collection are also regularly included.
New technology makes it possible for financial institutions
to gather this alternative data, which include financial and
nonfinancial data, from a variety of sources. Examples of
alternative data can include payment history in
telecommunications, rent, or utilities; checking account
transaction information; educational or occupational
attainment; how consumers shop, browse, or use devices;
and social media information. Some of this information is
now commonly used in certain types of credit underwriting
and scoring. This alternative data can potentially enable
CRAs and financial firms to score and underwrite credit to
borrowers who would otherwise be denied credit, but it may
present novel risks as well.
In the 118th Congress, legislation has been introduced to
encourage increased usage of alternative data. Among the
bills introduced are bills that would require federal agencies
to incorporate alternative data in mortgage underwriting
(H.R. 123 and H.R. 1266), enable/require reporting of
rental or utility payments (S. 1654/H.R. 3418, S. 4944), and
expand federal regulators’ use of sandboxes, which allow
firms to experiment without regulatory action (H.R. 9309/S.
4951, H.R. 6584).
