United StatesInteragency Statement on the Use of Alternative Data in Credit Underwriting
Federal Reserve CA 19-11; OCC Bulletin 2019-62; FDIC FIL-82-2019
Guidance, not a law: the Federal Reserve Board, the Consumer Financial Protection Bureau, the Federal Deposit Insurance Corporation, the National Credit Union Administration and the Office of the Comptroller of the Currency's reading of Equal Credit Opportunity Act and Regulation B, notice of action taken and statement of specific reasons for adverse action. It binds nobody by itself; the law it reads does.
Guidance on an AI sector rules rule, addressed to private bodies.
- Criminal exposure
- No
- Private right of action
- No
- Instrument type
- guidance published by a regulator
- Obligation class
- Governance
- Audit expectation
- continuous
- Who audits it
- Self
As of .
What the regulator expects
- It reaches you if you are a bank, credit union or non-bank financial firm that uses, or is contemplating using, alternative data in credit underwriting, meaning information not typically found in the consumer's credit files of the nationwide consumer reporting agencies or customarily provided by consumers as part of applications for credit (reached by declaring that you provide financial services and that you decide or materially influence consequential outcomes). The statement applies to the use of consumer data in the credit process rather than the furnishing, compilation or transfer of such data, and the agencies encourage responsible use of it.
- Before using alternative data, carry out through a well-designed compliance management program a thorough analysis of the relevant consumer protection laws and regulations, which the statement names as fair lending laws, the prohibitions against unfair, deceptive or abusive acts or practices, and the Fair Credit Reporting Act, so that you understand the opportunities, risks and compliance requirements.
- Apply more robust compliance management, including appropriate testing, monitoring and controls, to alternative data that present greater consumer protection risks.
- The agencies say you should consider the adverse action notice requirements of the Equal Credit Opportunity Act (Regulation B) and the Fair Credit Reporting Act, and they note that use of cash flow data can generally be explained and disclosed to the borrower, as those laws may require (12 CFR 1002.9).
- Make sure that a Second Look program, which uses alternative data only for applicants who would otherwise be denied credit, complies with applicable consumer protection laws.
- If you are a bank, the agencies say you should ensure that alternative data usage comports with safe and sound operations, with data controls that include rigorous assessment of the quality and suitability of data, and that the federal banking agencies' model risk management guidance contains principles for managing the risk of models that may leverage alternative data; the statement's footnote cites the 2011 and 2017 guidance that the revision superseded.
Who enforces it
Enforcement body
The Federal Reserve Board, the Consumer Financial Protection Bureau, the Federal Deposit Insurance Corporation, the National Credit Union Administration and the Office of the Comptroller of the Currency, each for the institutions it supervises. The statement carries no enforcement action of its own.
What this law does
The Federal Reserve Board, the Consumer Financial Protection Bureau, the Federal Deposit Insurance Corporation, the National Credit Union Administration and the Office of the Comptroller of the Currency issued the Interagency Statement on the Use of Alternative Data in Credit Underwriting. The OCC issued it as Bulletin 2019-62 on . The Federal Reserve issued it as CA Letter 19-11 on . The FDIC issued it as FIL-82-2019 on .
The statement defines alternative data as information not typically found in the consumer's credit files of the nationwide consumer reporting agencies or customarily provided by consumers as part of applications for credit. It applies to the use of consumer data in the credit process rather than the furnishing, compilation or transfer of such data.
The statement is focused on the consumer protection implications of the use of alternative data in underwriting, highlighting potential benefits and risks. It names the applicable consumer protection laws as, among others, fair lending laws, prohibitions against unfair, deceptive or abusive acts or practices, and the Fair Credit Reporting Act. To the extent firms are using or contemplating using alternative data, the agencies encourage responsible use of such data.
It says analysis of cash flow data generally focuses on assessing whether a borrower is able to meet new or existing recurring obligations by evaluating income and expense activity over time. It says a creditor's use of cash flow data can generally be explained and disclosed to the borrower, as may be required under the Equal Credit Opportunity Act and the Fair Credit Reporting Act.
It says firms using alternative data only for applicants who would otherwise be denied credit, in what are often called Second Look programs, must also comply with applicable consumer protection laws. It says a well-designed compliance management program provides for a thorough analysis of relevant consumer protection laws and regulations to ensure firms understand the opportunities, risks and compliance requirements before using alternative data.
It says data that present greater consumer protection risks warrant more robust compliance management, which includes appropriate testing, monitoring and controls. Its footnote on adverse action notices says firms should consider the requirements of the Equal Credit Opportunity Act (Regulation B) and the Fair Credit Reporting Act. That footnote cites 12 CFR 1002.9 and its official interpretation of paragraph 9(b)(2).
Its footnote on safe and sound operations says banks should ensure that alternative data usage comports with safe and sound operations. That footnote says appropriate data controls include, among other things, rigorous assessment of the quality and suitability of data to support prudent banking operations.
That footnote says the model risk management guidance of the federal banking agencies contains principles for managing risk related to models, including those that may leverage alternative data. That footnote cites SR 11-7, OCC Bulletin 2011-12 and the FDIC's FIL-22-2017. The Federal Reserve's SR Letter 26-2 of supersedes and replaces SR Letter 11-7. The OCC's Bulletin 2026-13 of rescinds OCC Bulletin 2011-12. The FDIC's FIL-15-2026 rescinds FIL-22-2017.