July 07, 2014

CFPB weighs value of remittance history for credit scores

July 8, 2014 – CFPB has determined that remittance history information would add little to the predictiveness of credit scoring models for consumers who have "unscorable" credit records but could be useful for consumers with scorable records, though it isn't certain just why.

The report follows another conducted in 2011 under requirement of the Dodd-Frank Act. For the more recent one, CFPB's analysis showed remittance histories have predictive value "over and above" the information currently incorporated in credit scores that would be expected to result in higher overall scores for consumers who have scorable credit histories. Remittance histories were positively associated with delinquency. This is not necessarily due to anything related to the remittance transfers themselves, but using remittance history in a credit scoring model is unlikely to increase credit scores of consumers who send remittance transfers, it says.

The report did note a concern over possible fair lending issues related to the use of remittance history data in credit scoring models. The data suggest remittance transfers "are likely correlated with race or ethnicity, indicating that the use of remittance histories in credit scoring models might raise concerns under fair lending laws," the report says.

The report also said the performance period reviewed "was a period characterized by abnormally high unemployment and delinquency," especially regarding mortgage credit. "While we are confident that our results are sufficiently robust to hold in a variety of economic environments, the time period almost certainly had an effect on the magnitudes of the effects that we observe," it says.