ATLANTA--(BUSINESS WIRE)--In an effort to continue educating the market about the importance of alternative data in assessing a consumer’s true Ability to Repay (ATR), FactorTrust, The Alternative Credit Bureau, releases a white paper today designed to shed light on the ATR issue, specifically considering the CFPB’s Proposed Rule. The company remains a reliable resource and innovator for lenders looking to comply with the anticipated regulation.
The CFPB’s Proposed Rule is expected to require lenders to take new steps to ensure consumers can repay short-term loans, vehicle title loans, deposit advance products, certain installment loans and open-end loans. For each loan, lenders will have to take into account the consumer’s income, major financial obligations and borrowing history, while considering a 30-day “cooling off period” between loans.
It’s clear, based on the analysis of FactorTrust’s research outlined in the white paper, that this rule will greatly affect a large portion of Americans. National experts agree that 21 percent of U.S. households – over 50 million consumers – are underbanked1. Because credit sources are limited to the underbanked, this population is one of the groups which most often seeks out smaller loans for emergency needs.
“In light of the recent CFPB Proposed Rule, FactorTrust has been studying closely the potential impact to the underbanked industry and how lenders can best adapt their practices for continued success,” says Greg Rable, CEO, FactorTrust, “In this white paper, we simulated key metrics outlined in the CFPB Proposed Rule on a large and robust recent population of loan applicants and borrowers found in our comprehensive covered loan database. Our goal was to draw meaningful insights that will help lenders immediately start to prepare.”
Key highlights in the FactorTrust’s white paper, include:
- Optimizing with Alternative Data: 31 percent of applicants would be eligible to borrow after considering the “cooling off” period and residual income requirements. However, applicant eligibility could reach as high as 40 percent, if lenders use alternative data to optimize underwriting decisions and dynamically adjust loan amounts, accommodating limited residual income.
- Housing: Underbanked consumers who own their own homes live in geographies where housing costs are roughly $154 per month lower than the national average. Underbanked consumers who rent live in geographies where rent costs are $26 per month lower than the national average.
- Timing: The fourth quarter experiences the highest rate of consumers falling within the “cooling off period,” which is the time when demand for consumer loans is highest.
“It is more important than ever for lenders to blend alternative credit risk and capacity scores to help them adjust their offerings and analyze a consumer’s ATR. Lenders can trust alternative credit data to approve more loans to underbanked consumers who need them, while maintaining business growth and adhering to the CFPB’s rules,” says Rable.
To download the white paper go to http://go.factortrust.com/cfpb-atr-white-paper.
About FactorTrust
FactorTrust, The Alternative Credit Bureau, is relentlessly dedicated to proven analytics and clean credit information that provides lenders opportunities to grow more revenue, meet compliance regulations and serve more consumers with more credit options. At the core of FactorTrust is alternative credit data not available from the Big Three bureaus and analytics and risk scoring information lenders need to make informed decisions about the consumers they want. FactorTrust Alternative Credit Data and Analytics accurately predicts risk and ability to repay of near and non-prime consumer loans in real-time and enables financial service companies an opportunity to uncover creditworthy prospects that are not surfacing via traditional credit sources. 113 million U.S. adults have credit scores below 700. Headquartered in Atlanta, the experienced FactorTrust team of predictive analytics specialists, statisticians and financial industry experts has delivered unique data and valuable insight to lenders throughout the U.S. for 10 years. For more information on the quarterly FactorTrust Underbanked Index or the company itself, visit www.FactorTrust.com.
1 Underbanked is defined as having a depository account but also using at least one alternative financial service in the prior year; this does not include those that are unbanked.
