WASHINGTON, D.C. – The Consumer Financial Protection Bureau (CFPB) today announced a no-action letter issued to Upstart Network, Inc., a company that uses alternative data in making credit and pricing decisions. As a condition of the no-action letter, Upstart will regularly report lending and compliance information to the CFPB to mitigate risk to consumers and aid the Bureau’s understanding of the real-world impact of alternative data on lending decision-making. This action comes as the Bureau continues to explore the use of alternative data to help make credit more accessible and affordable for consumers who are credit invisible or lack sufficient credit history.
Upstart Network, Inc. is based in San Carlos, Calif., and provides an online lending platform for consumers to apply for personal loans, including credit card refinancing, student loans, and debt consolidation. Upstart evaluates consumer loan applications using traditional factors such as credit score and income, as well as incorporating non-traditional sources of information such as education and employment history.
The CFPB’s no-action letter signifies that Bureau staff has no present intent to recommend initiation of supervisory or enforcement action against Upstart with respect to the Equal Credit Opportunity Act. The letter applies to Upstart’s model for underwriting and pricing applicants as described in the company’s application materials. The no-action letter is specific to the facts and circumstances of the particular company and does not serve as an endorsement of the use of any particular variables or modeling techniques.
Under the terms of the no-action letter issued by Bureau staff, Upstart will share certain information with the CFPB regarding the loan applications it receives, how it decides which loans to approve, and how it will mitigate risk to consumers, as well as information on how its model expands access to credit for traditionally underserved populations. The CFPB expects that this information will further its understanding of how these types of practices impact access to credit generally and for traditionally underserved populations, as well as the application of compliance management systems for these emerging practices.
The Bureau is exploring ways that alternative data may be used to improve how companies make lending decisions. In February, the CFPB launched an inquiry into the use of alternative data sources in order to evaluate creditworthiness and potentially expand access to credit for consumers with limited credit history. Alternative data could include things such as bill payments for mobile phones and rent, electronic transactions such as deposits and withdrawals, and other information that may be less closely tied to a person’s financial conduct. This inquiry also looked at the use of emerging technologies for underwriting, such as the expanded use of machine learning to potentially identify new insights and improve decisions in the credit process.
The goal of the CFPB’s no-action letter program is to facilitate consumer-friendly innovations where regulatory uncertainty may exist for certain emerging products or services. Under the policy, companies can apply for a statement from Bureau staff on an innovative product or service that offers the potential for significant consumer benefit where there is substantial uncertainty about whether or how specific provisions of law would be applied. A no-action letter advises a recipient that staff has no present intention to recommend initiation of an enforcement or supervisory action with respect to the specific matter. The CFPB’s Project Catalyst, an initiative designed to encourage consumer-friendly developments in the consumer financial marketplace, facilitates the no-action letter program as part of its work to support marketplace innovation.
The no-action letter issued to Upstart is available at: http://files.consumerfinance.gov/f/documents/201709_cfpb_upstart-no-action-letter.pdf
Upstart’s no-action letter application is available at: http://files.consumerfinance.gov/f/documents/201709_cfpb_upstart-no-action-letter-request.pdf
The Request for Information on alternative data is available at: https://www.consumerfinance.gov/about-us/newsroom/cfpb-explores-impact-alternative-data-credit-access-consumers-who-are-credit-invisible/
Information about Project Catalyst is available here: https://www.consumerfinance.gov/about-us/project-catalyst/
The Consumer Financial Protection Bureau is a 21st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives. For more information, visit consumerfinance.gov.