The Consumer Financial Protection Bureau (CFPB or Bureau) is the Nation's Federal agency whose sole mission is focused on consumer financial protection and making consumer financial markets work for all Americans. The Bureau is responsible for fair lending, by providing oversight and enforcement of Federal laws intended to ensure "fair, equitable, and nondiscriminatory access to credit for both individuals and communities."
The CFPB reported, in a series of publications, that roughly 20 percent of the adult population have no credit records or very limited credit records with the three Nationwide Credit Reporting Agencies (NCRAs). As a result, these "credit invisible" and "unscorable" consumers are unable to fully participate in the credit marketplace. This can limit their ability to withstand financial shocks and achieve financial stability.
In September 2018, the Bureau convened its first fair lending Symposium to address the issue of access to credit, entitled Building a Bridge to Credit Visibility. The Symposium was attended, both in-person and via web-based livestream video, by hundreds of stakeholders from industry, government, think tanks, academia, and consumer advocacy and civil rights organizations, representing a diverse range of experiences and perspectives. Panelists discussed strategies and innovations that could help credit invisible and unscorable consumers overcome barriers to, and expand, credit access. The Symposium was held at CFPB headquarters in Washington, D.C.
The Bureau's Building a Bridge to Credit Visibility Symposium added to the growing body of knowledge on the credit invisible population. The Symposium, and the Geography of Credit Invisibility data point released in conjunction with the Symposium, provided a platform where industry, consumer and civil rights advocates, regulators, researchers, and other stakeholders could raise awareness of the issues that credit invisible and unscorable consumers may face, learn more about innovation that is happening in these spaces, and shape plans for how to continue to increase access to credit going forward. Major topic areas included:
This Report summarizes each portion of the Symposium and identifies key themes that may be of interest to stakeholders, including policy-makers. The summaries contained herein reflect the remarks and views of the various panelists, and not the official viewpoint or endorsement of the Bureau. A video recording of the Symposium, with closed captions, is available on the Bureau's website.
At the Symposium, a number of stakeholders took part in substantive panel discussions. Those panel discussions are summarized below.
During this panel each speaker delivered a short talk on issues such as credit invisibility, lending deserts, and innovation to expand access to credit (CRED Talks). Speakers included Samantha Vargas Poppe, Director of the Policy Analysis Center, UnidosUS; Marla Blow, Founder and CEO, FS Card, Inc.; Ken Brevoort, Section Chief, Credit Information Policy Section, Office of Research, CFPB; and Ida Rademacher, Vice President, Aspen Institute and Executive Director, Aspen Financial Security Program.
The ability to access credit is a critical component for families and individuals nationwide to have the opportunity to climb the economic ladder, exercise informed consumer choice, build wealth, and achieve economic stability. During this panel, a panelist representing UnidosUS, a Latino nonprofit organization, explained that access to credit can affect consumers' daily lives in many ways, and often means the difference between economic opportunity and fragility. According to this panelist, access to credit affects where consumers reside, work, and go to school; it may also have lasting generational effects.
As reported by the Bureau, however, the inability to access the traditional credit system remains a challenge. Consumers with limited credit histories fall into two main groups. "Credit invisibles" are consumers who do not have a credit record with the NCRAs. As of 2010, 11 percent of the adult population, or 26 million people, were credit invisible. Another group consists of consumers who have limited credit records with the NCRAs, but the records are deemed "unscorable" because they (i) consist of stale accounts (i.e., no recently reported activity) or (ii) contain too few accounts or accounts that are too new to be reliably scored. As of 2010, approximately 19 million people, or 8.3 percent of the adult population, had "unscorable" credit records.
Credit invisibility and unscorable credit records affect some segments of the population more than others. About fifteen percent of Blacks and Hispanics are credit invisible compared to roughly 10 percent of Whites and Asians. Thirteen percent of Blacks and 12 percent of Hispanics have unscorable credit records compared to about 7 percent of Whites and close to 8 percent of Asians. In addition, young consumers are more likely to be credit invisible.
The panelist representing UnidosUS shared how specific obstacles may prevent some Hispanic consumers, in particular, from transitioning to credit visibility. According to this panelist, some Hispanic consumers may be caught in a "Catch-22" situation where they cannot access credit without a credit record, but they cannot establish a credit record without access to credit. In addition, a lack of bank branches in some Hispanic neighborhoods may be a factor; this panelist observed a correlation between the number of bank branches in a neighborhood and the racial or ethnic makeup of that neighborhood. Finally, this panelist noted that new immigrants start as credit invisible when they come to this country. She explained that alternative forms of identification that immigrants might have access to—such as Individual Taxpayer Identification Numbers (ITINs)—may not be readily accepted by some financial services providers, limiting their ability to obtain credit from the financial institution.
A panelist representing the Aspen Institute discussed how the first experience a consumer has with credit may have lasting ramifications. She explained that a consumer whose first reported activity is her credit card repayment activity, for instance, may be in a better position to access credit in the future than a consumer whose first reported activity is a debt-collection-related activity—e.g., for health-care-related credit. This panelist highlighted the fact that, as also borne out by the CFPB's research, consumers in low-income households are much more likely than consumers in high-income households to enter credit visibility as a result of a third-party debt collector reporting information about unpaid debts to consumer reporting agencies.
Another panelist, the Section Chief in the Bureau's Office of Research, discussed what researchers currently understand about credit invisibility, while acknowledging that further research into the area may be needed. For instance, according to this panelist, the prevalence of credit invisibility varies by geography. This panelist observed how (as also reported by the Bureau at the Symposium in a data point released on the same day as the event) in urban parts of the country, for instance, residents of low-to-moderate income (LMI) neighborhoods have higher rates of credit invisibility than residents of middle- or upper-income neighborhoods. He further explained that the highest rates of credit invisibility are observed among residents "22 percent of individuals from of rural areas of the U.S., but they do not vary low-income households enter much by income; residents of high-income credit visibility via debt and rural areas have credit invisibility rates that are similar to those found among residents of LMI collections." or middle-income rural areas.
The panelist representing UnidosUS also addressed potential strategies for successfully lending to consumers who may otherwise be shut out of the credit system. According to this panelist, this may include establishing partnerships between financial services providers and mission oriented groups, and furthering innovation in expanding access to credit. This panelist also emphasized the importance of providing financial coaching to members of the credit invisible population; consumers who are new to the system or who have had limited experience with credit may be better positioned to succeed when they have the information and tools to understand how credit products work and can best help them achieve their goals. There was agreement among the panelists, including the panelist representing FS Card, Inc., that further efforts to understand the unique experiences of the credit invisible population may be needed, with one panelist noting that direct engagement and dialogue with members of this population may be key.
And finally, the panelist representing the Aspen Institute, in providing context for the experience of credit invisibles, raised the need to tackle the role of debt in the lives of consumers. This panelist analogized credit to water, noting that during natural disasters like hurricanes and floods, although water itself may be extremely prevalent, clean and safe water is often a scarcity. She suggested that a similar dynamic may exist within the credit marketplace— that is, some consumers might find themselves awash in risky credit but unable to access safe— or "potable"—credit. And she urged Symposium participants to work toward increasing the supply of potable credit.
During this panel, panelists explored questions related to entry products that may bridge consumers to credit visibility while also preparing them for financial success. Speakers included James Garvey, CEO and Co-Founder, Self Lender; Dara Duguay, Executive Director, Credit Builders Alliance; Matt Hull, Executive Director, Texas Association of Community Development Corporations; and Larry Santucci, Senior Research Fellow, Philadelphia Federal Reserve Consumer Finance Institute.
As previously reported by the Bureau, a credit record is created for a consumer when a tradeline, collection account, or public record is reported to or obtained by an NCRA. NCRA records are often used by lenders when making credit decisions. If a consumer does not have a record with an NCRA or if they have only a limited credit history, a lender is less likely to extend credit to that consumer. Sometimes these consumers turn to less traditional, higher-cost credit products with less favorable terms. Credit invisible consumers may also face difficulties in other areas of their lives. Though initially developed as a method for helping lenders make credit decisions, the use of credit records has expanded beyond lending; for example, credit histories can be used as a factor in leasing an apartment, determining car insurance premiums, and obtaining a cellphone.
As one panelist explained during an earlier discussion, for many credit invisible consumers, lack of a credit record means they cannot access credit—but without credit they are unable to establish a credit record. Still, data show that some credit invisible consumers do make the transition to credit visibility. "Entry products" may be a key component to helping consumers establish a positive credit record and successfully transition to credit visibility.
As the Bureau's research shows, across all age groups and income levels, credit cards are the most common entry product used by consumers who successfully transition out of credit invisibility to become credit visible. The CFPB's research reports that this is somewhat less true for consumers who become credit visible in rural areas of the country. The Bureau's research also shows that proximity to a bank increases the likelihood that consumers will use a credit card as an entry product; however, this does not hold true in rural areas. After credit cards, the most common entry products appear to be auto loans and student loans.
Most consumers are credit invisible at age 18, but many transition to visibility by age 25—often through the use of credit cards. Some consumers, however, remain credit invisible past the age of 25. During this panel, panelists discussed some specific products or methods that have successfully been used by these "older" credit invisible consumers as entry products for transitioning to credit visibility.
Some panelists observed that secured credit cards may be one such product. One panelist noted, however, that secured credit cards may be under-utilized, perhaps because the requirement to put down a security deposit is an obstacle for low-income consumers. Another panelist observed that some financial services providers do not actively market prime secured credit cards. Other products or methods that consumers have historically used to enter credit visibility, according to panelists, include student credit cards, student loans, and "piggybacking"—that is, becoming a joint account holder or an authorized user on another individual's account.
Some panelists also noted that some currently available products may not be appropriate vehicles for transitioning to credit visibility. For example, because data concerning pre-paid cards is not reported to the NCRAs, users do not build up a credit profile by using these cards; one panelist, representing the Philadelphia Federal Reserve Consumer Finance Institute, noted that this may be a source of confusion for consumers as they try to make informed choices. This panelist also observed that marketplace lenders often require consumers to have a minimum FICO score, making their product offerings potentially ill-suited for use as an entry product.
The panelists discussed strategies that may help some consumers make the transition to credit visibility. For example, one panelist, representing the Credit Builders Alliance, described how rent payment data has successfully been used to bring some consumers into credit visibility by supplementing information available on their credit reports, as it provides an additional perspective on financial behavior. Another effort described by the panelist from the Philadelphia Federal Reserve Consumer Finance Institute involves converting consumers' credit bureau data from other countries into a credit score that is comparable to scores that are widely used in the U.S., which may be helpful for immigrants. Credit-builder loans and topical specific loans, such as re-entry loans, bail loans, immigration loans, housing stability loans, and assistive technology loans, were also discussed by some panelists as successful products that may increase credit visibility among underserved populations. Finally, the panelist representing the Credit Builders Alliance noted that at least one lender offers a secured credit card where the consumer can pay the security deposit securing the credit card in installments.
Panelists noted that viable entry products share a few common characteristics:
During the panel, panelists discussed the "business case" for offering entry products. Expanding access to credit may benefit both consumers and financial services providers; consumers may benefit by having access to credit that best meets their needs or situation, and by offering credit products that can serve as an "on-ramp" to consumers seeking to transition to credit visibility, financial services providers establish relationships with borrowers that may lead to subsequent and more profitable future transactions. One panelist, representing Self Lender, acknowledged, however, that many large financial services providers want to offer entry products, such as small-dollar loans, but may find that the expenses associated with these activities, such as servicing costs, can make such offerings unprofitable given their relatively small size.
The panelist from the Credit Builders Alliance described how non-profit groups have provided entry small dollar loan products, leveraging partnerships with larger lenders or local Community Development Financial Institutions (CDFIs) to provide small-dollar loans to consumers that are often coupled with financial education. Panelists further described how non-profits serving the credit needs of borrowers who may be underserved by larger financial institutions have lowered the costs associated with making and servicing loans by, for example, building their own infrastructure (e.g., loan servicing software) and seeking access to subsidized capital from banks and social investors.
Panelists described some providers that are active in this area, such as non-profit lenders and CDFIs. For example, one panelist representing the Community Loan Center of America discussed his program, which is an online, employer-based, small-dollar lending platform available to employees of participating employers through 20 franchised, mission-driven local lenders. Another panelist, from Credit Builders Alliance, offered her view that non-profit groups began making small-dollar loans because the community members they serve were unable to get credit elsewhere. This panelist addressed the fact that consumers who might benefit from having access to these non-profit lenders may not be aware they exist, given that non-profit organizations often lack advertising budgets. Therefore, she called for raising awareness among potential users about these types of lenders and unique partnerships.
During this panel, panelists focused on identifying barriers and solutions to accessing credit in the small business lending space, and discussed the roles played by different stakeholders in this space. Speakers included Daniel Upham, Acting Director, Office of Economic Opportunity, U.S. Small Business Administration (SBA); Tiq Chapa, Director for External Relations, Latino Business Action Network; Galen Gondolfi, Senior Loan Counselor and Chief Communications Officer, Justine PETERSEN; and Rajitha Swaminathan, Director of Programs, Grameen America, Inc.
According to the SBA, fifty percent of people employed in the U.S. are employed by small businesses, and small businesses create roughly two-third of new jobs in the U.S. economy. The ability of small business owners and entrepreneurs to access credit in order to start and grow their businesses is, therefore, important to the strength of the U.S. economy. For a consumer who is (or hopes to become) a small business owner or entrepreneur, their personal creditworthiness may be critical to the ability of their business to access credit. For these consumers, then, credit invisibility in particular may present a challenge to achieving their dreams as small business owners and entrepreneurs.
A representative from the SBA's Office of Economic Opportunity described the SBA's Microloan Program. According to the panelist, this small-dollar lending program works with mission based lenders and non-profit lenders to provide capital, as well as counseling, training, and technical assistance, to small business owners and entrepreneurs. This panelist explained how, in addition to the capital offered through the program, counseling, training, and technical assistance are also made available to small business owners and entrepreneurs, in order to increase the likelihood of success as small businesses are started and grown. The panelist clarified that SBA does not set credit standards itself; rather, intermediary lenders working with the agency, such as fellow panelists from Grameen America, Inc. and Justine PETERSEN, set credit standards, allowing for flexibility in extending credit to small businesses whose owners and entrepreneurs may themselves be credit invisible.
Panelists also discussed two examples of mission-based lenders or non-profit lenders that participate in SBA's Microloan Program. First, a representative from Grameen America, Inc. described her organization, which makes microloans to female entrepreneurs seeking to start or maintain a small business. A key theme touched upon by panelists during this segment of the panel discussion was "social capital." Rather than relying on traditional indicia of creditworthiness, such as a credit record, Grameen America, Inc. considers, for example, whether a group of individuals will vouch for a potential borrower and her business; a borrower's behavior and level of engagement is also critical to Grameen America, Inc.'s decision-making process. The Grameen America, Inc. representative described how borrowers participating in Grameen America, Inc.'s program establish credit records with the NCRAs. She noted that after only six months participating in the Grameen America, Inc. program, the average personal credit score for a borrower/entrepreneur is around 640. As a result, borrowers may be able to successfully establish a relationship with mainstream financial services providers, be approved for rental housing, or obtain financing for a vehicle.
A representative from another participant in SBA's Microloan Program, Justine PETERSEN, "Most of our clients have told us described his organization. A key theme touched that, you lent us money, you trust upon by panelists during this segment of the us, and that's why they referred a discussion was the importance of dialogue and friend, neighbor, or relative." high-level engagement with borrower/entrepreneurs, and trust. Justine PETERSEN takes what it describes as a "clinical" approach to evaluating and understanding borrower/entrepreneurs, and through conversations develops a thorough understanding of the business' needs. According to the panelist, clients of the organization report referring friends, neighbors, or relatives to the organization based on the trust Justine PETERSEN has established with those clients. Lastly, he observed that the importance of the small-dollar loans that small business owners and entrepreneurs receive by working with Justine PETERSEN may be less important than the credit enhancement they obtain as a result of the reporting of their repayment history to the NCRAs and resulting establishment of or improvement to their personal credit record.
A representative from the Latino Business Action League, which is a partnership of hundreds of Latino small businesses, discussed the work that the Latino Business Action League conducts, including research and executive education. This panelist discussed challenges Latino small business owners and entrepreneurs may face, including those presented by language barriers or immigration status. The panelist noted that lenders seeking to form relationships with small business owners and entrepreneurs with limited English proficiency may more easily establish trust with these groups by employing staff who speak the language with which small business owners and entrepreneurs are most proficient.
The panelist representing the Latino Business Action League also noted the lack of available research in the area of small business capital needs, particularly among minority small business owners and entrepreneurs, and called for additional research to be undertaken in this area. Additional themes touched upon by panelists during this discussion included the need to foster digital inclusion and address specific challenges that borrowers with limited English proficiency or immigrant status may face. These panelists stressed that "high-touch" relationships between lenders and small business owners and entrepreneurs may be key to successful lending relationships.
During this panel, participants discussed the role alternative data and modeling techniques may play in expanding access to traditional credit. Speakers included Jason Gross, Co-Founder and CEO, Petal; Eric Kaplan, Director, Housing Finance Program, Center for Financial Markets, Milken Institute; Melissa Koide, CEO, FinRegLab; and Andrea V. Arias, Attorney, Division of Privacy and Identity Protection, Bureau of Consumer Protection, Federal Trade Commission (FTC).
For some credit invisible consumers, the use of unconventional sources of information, or "alternative data," may be a way to become credit visible. As recognized by the Bureau, but also discussed by a panelist representing FinRegLab, alternative data draws from sources such as bill payments for mobile phones, utilities and rent, and electronic transactions such as deposits, withdrawals, or transfers. Alternative data might also draw from "big data"—which one governmental report referred to as "the nearly ubiquitous collection of consumer data from a variety of sources."
For credit invisible consumers, this information could evince a history of meeting financial obligations that may not be documented in a standard credit record. As a result, some consumers who cannot today get reasonably priced credit may see greater access to credit or lower borrowing costs when these additional data are considered. Alternative data may also present risks to consumers, however, including the risk that the data is, among other things, inconsistent, incomplete, or inaccurate. Such flaws may adversely affect credit access for lowincome and underserved populations.
One panelist represented a financial services provider that uses alternative data: Petal. According to this panelist, Petal utilizes "cash-flow data" for underwriting purposes. The panelist explained that cash-flow data is information that is contained in a consumer's checking or savings account statements; Petal uses a consumer-permissioned, digital form of this type of data through a third party data aggregator. This panelist felt that the data used by Petal is reliably accurate, given that it comes from a source with a vested interest in ensuring the accuracy of its data—namely, bank account providers. He noted that this type of data is available to many consumers, including some consumers who are otherwise credit invisible— and therefore may potentially expand access to credit.
Panelists also discussed the general benefits and risks that may arise from the use of alternative data. First, outside the credit context, one panelist representing the FTC noted that the potential benefits associated with the use of alternative data may include even the enhanced tailoring of healthcare to specific populations, particularly in rural and low-income areas. The panelist next discussed the potential benefits associated with the use of alternative data as it pertains specifically to access to credit. Alternative data may expand access to credit for the credit invisible population while potentially lowering the cost of credit for other consumers. Another panelist, representing the Milken Institute, seconded the potential for alternative data to benefit credit invisible consumers.
Some of the panelists acknowledged that the use of alternative data is not without risk. Specifically, the panelist from the FTC noted that some consumers may be denied opportunities based on activities that lack a logical nexus to creditworthiness or based on common actions by groups of other consumers. According to a report from the FTC, for instance, "one credit card company settled FTC allegations that it failed to disclose its practice of rating consumers as having a greater credit risk because they used their cards to pay for marriage counseling, therapy, or tire-repair services, based on its experiences with other consumers and their repayment histories." In addition, alternative data may be used to target vulnerable consumers. According to the FTC's report, "unscrupulous companies can obtain lists of people who reply to sweepstakes offers and thus are more likely to respond to enticements, as well as lists of 'suffering seniors' who are identified as having Alzheimer's or similar maladies." Lastly, alternative data may create or reinforce existing disparities. At least one panelist, from Petal, questioned whether it is appropriate for financial services providers to make decisions based on, for example, a consumer's Internet search history or social media usage.
At least one panelist, representing the FTC, also discussed the fact that consumers may find it very challenging to dispute inaccuracies in alternative data. According to the panelist, this may be due to the fact that it can be difficult to identify the source of any inaccuracies in alternative data, much less dispute it. This panelist emphasized that while alternative data can be used to expand credit access to credit invisible consumers, it can also function in the reverse—namely, alternative data may result in a consumer being deemed not creditworthy even though under a traditional scoring model the consumer would be considered creditworthy.
Lastly, a panelist from the FTC discussed the FTC's report on "big data." Again, alternative data may include the use of big data, which draws from large datasets built upon information about many forms of consumer behavior and activity, including sources that traditionally are not reported to the NCRAs. The FTC's report highlighted risks that may be associated with the use of big data, and provided guidance to market actors considering using such data. According to the report, the use of big data might lead to more individuals mistakenly being denied opportunities based on information related to the actions of others, and may create or reinforce existing disparities if the information contained in the datasets itself reflects discrimination or bias. Finally, it reported that the use of big data could result in higher-priced goods and services for lower-income communities and may weaken the effectiveness of consumer choice.
At the Symposium, Jacqueline Reses from Square, Inc. and Square Capital ("Square") gave the keynote address. Later in the day, Paul Watkins, Assistant Director of the Bureau's Office of Innovation, shared his vision for the new office. Finally, Bureau leaders ended the Symposium with a "fireside chat," highlighting key themes from the day and exploring the ways the CFPB's mission provides the Bureau with tools to engage on these issues.
Following her introduction by the Bureau's Acting Deputy Director, Brian Johnson, Jacqueline Reses, Square Capital Lead, delivered the lunchtime keynote address. Her description of Square's work highlighted for participants the importance of innovation in expanding access to credit. Through the innovative use of payment data, she reported that Square has been able to serve the capital needs of small business owners and entrepreneurs who might otherwise be unable to access credit, including businesses located in rural areas as well as small, women owned, and minority-owned businesses. She stated that Square's reported success shows that making small-dollar loans to underserved businesses can be a profitable and sustainable business model.
Paul Watkins, the Assistant Director of the Bureau's Office of Innovation, in his first public address as Innovation chief, described for participants his vision for the Bureau's newly created office. He emphasized the importance of access, choice, and competition. He discussed ongoing innovations in the space, including the use of alternative data and marketplace lending.
Finally, a few officials from the Bureau ended the day with a "fireside chat." These Bureau leaders discussed unique ways in which the offices they oversee can support innovation to expand access to credit. Patrice Ficklin, the Bureau's Fair Lending Director, reminded industry about existing opportunities for furthering responsible, consumer-friendly innovation, through the use of tools such as No-Action Letters and Special Purpose Credit Programs. Will WadeGery, Director of the Bureau's Card, Payment, & Deposit Markets Office, explained that his office holds frequent conversations with market participants, outside of the enforcement or supervisory context, and this dialogue can serve as a sounding board for exploring innovative developments. Grady Hedgespeth, who leads the Bureau's Small Business Lending Markets Office, underscored the importance of relationships between the Bureau and the private sector for, among other things, lowering compliance costs for regulated entities. Paul Watkins, the Director of the Bureau's Office of Innovation, talked about the need for leveraging interagency dialogue and collaboration, and how this can benefit industry by ensuring that regulators speak with one consistent voice. Daniel Dodd-Ramirez, Director of the Bureau's Community Affairs Office, discussed how his office partners with consumer-facing organizations, and supports innovation at the local level through the development of consumer education content and other tools. And finally, Frank Vespa-Papaleo, Principal Deputy Director of Fair Lending and moderator of the fireside chat, highlighted the collaboration between various Bureau offices in exploring access to credit.
A few key themes were evident across panel discussions at the Symposium. These themes may inform action planning for private and public sector stakeholders from industry, consumer and civil rights advocacy organizations, academia, and government. Some of these key themes were:
The CFPB convened the Building a Bridge to Credit Visibility Symposium with the goal of injecting additional momentum into the many ongoing conversations about credit invisible consumers. The CFPB is committed to continue serving as a convener for these discussions, seeking the perspectives of diverse stakeholders, and facilitating innovative efforts that increase fair, equitable, and non-discriminatory access to credit.