Regulatory Compliance

Four Experian employees reflect on financial lessons and challenges learned during their time served in the military. Pedro Martinez, based at Camp Lejeune in North Carolina, was earning a monthly salary of just $680 as a Private First Class for the Marine Corps. in 1988. Winter was nearing, and since he was living off base, he needed a heater. “I was able to purchase one with ‘easy credit’ for $15 per month, for 18 months,” said Martinez, now living in Costa Rica. “I ended up paying a lot more than driving to Kmart and getting one there if I had the money. But for the purchase I was able to make at the time, I had to finance it, and I remember the interest rate was almost 40 percent.” Fast forward decades later, and Martinez recalls those same “easy credits” and payday loans surround local bases. Advance paycheck services offering rates of 30 percent and beyond for brief, 15-day cycles abound. While military base consumer advisors can encourage personnel to steer clear, more formal protections have been lacking. Until now. “The Military Lending Act is definitely a great measure to assure a fair consumer treatment, regulate high-interest rates, and safeguard families from going bankrupt,” said Martinez. No one can tell the stories of military life better than those who have lived it. They understand the training, sacrifices, day-to-day grind as well as the experiences of managing life on base and far from home. Financial education is lacking among all consumer groups in the country, and it is easy for a few credit mishaps to take individuals to a place where they soon find themselves struggling to get out of debt and obtain affordable credit. “I witnessed countless friends in the military finance furniture, receive cash advances and take out loans on their cars, which ultimately hurt them financially,” said Marshall Abercrombie, who served five years as a Navy Corpsman with the Marines. “Unfortunately, there are more title loans, cash advance and furniture leasing companies found within military towns compared to legitimate financial institutions. So, when you combine word-of-mouth, inexperience and easy access you end up with necessary legislature like the Military Lending Act.” Abercrombie, who currently resides in the southeast, claims his first “solo” experience with a financial institution saved him from falling down a bad path. “I can remember gripping my diploma thinking ‘now what am I going to do with all this money I’m about to start making?’” said Abercrombie. “Fortunate for me I was immediately greeted by a very eager representative of Armed Forces Bank. Despite being only 19 years old, looking back it’s apparent how much opportunity someone like me represented to a bank given I now had a government job that required I set up auto-deposit for future paychecks.” Especially for those military members sent overseas, opportunities and challenges can be unique. Michael Kilander, now a Southern California resident, was deployed overseas in Germany in the early 90s with his wife and ran into trouble with a large U.S. bank. “We had a credit card that we fell a month behind in paying,” says Kilander. “We had the money each time but did not receive the statement/ bill until a week after the due date. The military mail system took a great deal of time, particularly if you lived off base in the local Germany economy, as we did.  We asked if the bank could mail the bill a little earlier, but they refused and were uninterested in the challenges of the APO system.  Consequently we had to keep track of the amount spend on the card and estimate the likely charges and pay before we received the bill.  We switched cards a few months later.” Raymond Reed, who enlisted with the Navy out of high school, was luckily advised by his parents to join a military credit union. “I did not realize I needed credit, and assumed credit was only offered to those with savings,” said Reed. “During my Navy tour, I joined a military credit union and since I did not have standard expenses, other than car insurance, which was covered by my paychecks.  At the end of my tour, I saved and paid cash for my motorcycle, as I was accustomed to since I had a nice savings established.” The stories of stresses and opportunities surrounding military and credit are diverse and widespread, but the positive news is updated regulations will add increased protections. Learn more about the Servicemembers Civil Relief Act and now enhanced Military Lending Act to understand the varying protections, as well as discover how financial institutions can comply and best support military credit consumers and their families.

Whether its new regulations and enforcement actions from the Consumer Financial Protection Bureau or emerging legislation in Congress, the public policy environment for consumer and commercial credit is dynamic and increasingly complex. If you are interested to learn more about how to navigate an increasingly choppy regulatory environment, consider joining a breakout session at Experian’s Vision 2016 Conference that I will be moderating. I’ll be joined by several experts and practitioners, including: John Bottega, Enterprise Data Management Conor French, Funding Circle Troy Dennis, TD Bank Don Taylor, President, Automated Collection Services During our session, you’ll learn about some of the most trying regulatory issues confronting the consumer and commercial credit ecosystem. Most importantly, the session will look at how to turn potential challenges into opportunities. This includes learning how to incorporate new alternative data sets into credit scoring models while still ensuring compliance with existing fair lending laws. We’ll also take a deep dive into some of the coming changes to debt collection practices as a result of the CFPB’s highly anticipated rulemaking. Finally, the panel will take a close look at the challenges of online marketplace lenders and some of the mounting regulations facing small business lenders. Learn more about Vision 2016 and how to register for the May conference.

Ensuring the quality of reported consumer credit data is a top priority for regulators, credit bureaus and consumers, and has increasingly become a frequent headline in press outlets when consumers find their data is not accurate. Think of any big financial milestone moment – securing a mortgage loan, auto loan, student loan, obtaining low-interest rate interest credit cards or even getting a job. These important transactions can all be derailed with an unfavorable and inaccurate credit report, causing consumers to hit social media, the press and regulatory entities to vent it out. Add in the laws and increased scrutiny from the Consumer Financial Protection Bureau (CFPB), and Federal Trade Commission (FTC) and it is clear data furnishers are seeking ways to manage their data in more effective ways. At Vision 2016, I am hosting a session, Achievements in data reporting accuracy – maximizing data quality across your organization, with several panel guests willing to share their journeys and learnings attached to the topic of data accuracy. Our diverse panel features leaders from varying industries: Jodi Cook, DriveTime Alissa Hess, USAA Bank Tom Danchik, Citi Julie Moroschan, Experian Each will speak to how they’ve overcome challenges to introduce a data quality program into their respective organizations, as well as best practices around assessing, monitoring and correcting credit reporting issues. One speaker will even touch on the challenging topic of securing funding for a data quality program, considering budgets are most often allocated to strategies, products and marketing directly tied to driving revenue. All lenders are advised to maintain a full 360-degree view of data reporting, from raw data submissions to the consumer credit profile. Better data input equals fewer inaccuracies, and an overarching data integrity program, can deliver  a comprehensive view that satisfies regulators, improves the customer experience and provides better insight for internal decision making. To learn more about implementing a data quality plan for your organization, check out Vision 2016.

In today’s interconnected world, reaching consumers should be as simple as sending a text or calling their cell phone. However, complying with the Telephone Consumer Protection Act (TCPA) can create an almost insurmountable mountain. While the law has been in place since 1991, TCPA litigation continues to be a considerable source of potential legal and compliance risk for companies communicating with consumers.  There were 1,908 TCPA lawsuits in 2014, an increase of 30 percent over the previous year, and a 231 percent increase in the last four years. Is your business facing challenges in complying with TCPA? Do you want to learn more about the changing and challenging TCPA legal and regulatory framework? Are you looking for best practices on how to win the battle of right party contact? Then you should join us for a breakout session solely focused on TCPA at Experian’s Vision 2016 Conference. The panel features a number of subject matter experts who will be able to provide attendees with a look at this law and some of the best practices to manage risk and ensure compliance. Panelists include: Mary Anne Gorman, Experian Tony Hadley, Experian Tom Gilbertson, Venable LLC   To learn more more about TCPA best practices, check out Experian’s annual Vision Conference in May.

Whether it is an online marketplace lender offering to refinance the student loan debt of a recent college graduate or an online small-business lender providing an entrepreneur with a loan when no one else will, there is no doubt innovation in the online lending sector is changing how Americans gain access to credit. This expanding market segment takes great pride in using “next-generation” underwriting and credit scoring risk models. In particular, many online lenders are incorporating noncredit information such as income, education history (i.e., type of degree and college), professional licenses and consumer-supplied information in an effort to strike the right balance between properly assessing credit risk and serving consumers typically shunned by traditional lenders because of a thin credit history. Regulatory concerns The exponential growth of the online lending sector has caught the attention of regulators — such as the U.S. Treasury Department, the Federal Deposit Insurance Corporation, Congress and the California Business Development Office — who are interested in learning more about how online marketplace lenders are assessing the credit risk of consumers and small businesses. At least one official, Antonio Weiss, a counselor to the Treasury secretary, has publicly raised concerns about the use of so-called nontraditional data in the underwriting process, particularly data gleaned from social media accounts. Weiss said that “just because a credit decision is made by an algorithm, doesn’t mean it is fair,” citing the need for lenders to be aware of compliance with fair lending obligations when integrating nontraditional credit data. Innovative and “tried and true” are not mutually exclusive Some have suggested the only way to assuage regulatory concerns and control risk is by using tried-and-true legacy credit risk models. The fact is, however, online marketplace lenders can — and should — continue to push the envelope on innovative underwriting and business models, so long as these models properly gauge credit risk and ensure compliance with fair lending rules. It’s not a simple either-or scenario. Lenders always must ensure their scoring analytics are based upon predictive and accurate data. That’s why lenders historically have relied on credit history, which is based upon data consumers can dispute using their rights under the Fair Credit Reporting Act. Statistically sound and validated scores protect consumers from discrimination and lenders from disparate impact claims under the Equal Credit Opportunity Act. The Office of the Comptroller of the Currency guidance on model risk management is an example of regulators’ focus on holding responsible the entities they oversee for the validation, testing and accuracy of their models. Marketplace lenders who want to push the limit can look to credit scoring models now being used in the marketplace without negatively impacting credit quality or raising fair lending risk. For example, VantageScore® allows for the scoring of 30 million to 35 million more people who currently are unscoreable under legacy credit score models. The VantageScore® credit score does this by using a broader, deeper set of credit file data and more advanced modeling techniques. This allows the VantageScore® credit score model to capture unique consumer behaviors more accurately. In conclusion, online marketplace lenders should continue innovating with their own “secret sauce” and custom decisioning systems that may include a mix of noncredit factors. But they also can stay ahead of the curve by relying on innovative “tried-and-true” credit score models like the VantageScore® credit score model. These models incorporate the best of both worlds by leaning on innovative scoring analytics that are more inclusive, while providing marketplace lenders with assurances the decisioning is both statistically sound and compliant with fair lending laws. VantageScore® is a registered trademark of VantageScore Solutions, LLC.

When checking access accounts were first introduced, it wasn’t uncommon for banks to provide new customers “basic” transaction services in starter checking accounts. These services typically included an automatic teller machine (ATM) access card and the ability to withdraw cash at their local branch. As consumers developed a relationship and established financial trust with their bank, they eventually would get a checkbook, which allowed check-writing access. This took time and a consumer demonstrating both the willingness and ability to manage finances to the bank’s expectations. Establishing the financial relationship was a trust-building process. With the onset of general-purpose debit cards and a host of other digital money-movement capabilities, such as online banking, the majority of banks now offer just basic and preferred checking. A minimum acceptance standard leaves many consumers out of the financial transaction system, which is something that concerns regulatory bodies such as the Consumer Financial Protection Bureau (CFPB). Approval criteria vary across financial institutions, but a typical basic checking account has some form of overdraft feature enabled, and some consumers may not be able to afford these fees even if they elect to opt in for overdraft functionality. Nonetheless, banks still screen applicants to ensure prior accounts at other institutions were managed with no losses incurred by other banks. In today’s modern world, it is difficult to participate fully in our credit-driven society without a checking account at a recognized bank or credit union. The answer in many cases would be checking accounts for consumers that have either overdraft functionality assigned based on the consumer’s wish to opt in or overdraft access that matches that same consumer’s ability to pay. In early February, the CFPB passed new guidelines to increase access to basic check products. While a step towards making checking accounts available to all, the most recent actions still leave unresolved regulatory actions regarding what the CFPB refers to as “affordable” checking access. For instance, for those consumers without disposable income, the issue of fees for overdraft and nonsufficient funds is still an unresolved regulatory matter. In the most recent announcement, the CFPB took several actions related to its focus on increasing consumer access to checking transaction accounts with banks: Sending a letter to CEOs of the top 25 banks encouraging them to take steps to help consumers with affordable checking account access such as “no fee” and/or “no overdraft” checking accounts Providing several new resources to consumers such as a guide to “Low Risk Checking, Managing Checking and Consumer Guide to Checking Account Denial” Introducing the Consumer Protection Principles, which include a drive toward: Faster funds availability Improved consumer transparency into checking account fee structure, funds availability and security Tailoring products to reach a larger percentage of consumers Developing no-overdraft type checking products, which only a handful of large banking institutions had What lurks ahead for banks is the need to develop products that are designed to reach a larger population that includes under banked and unbanked consumers with troubled financial repayment history. Coupling this product development effort with the CFPB desire for no-overdraft-fee type products makes me wonder if we should look to account features from several decades ago, such as creating a 21st century version of the checking account with digital money-movement features that protects consumers’ privacy, but doesn’t put them in a position to rack up large amounts of overdraft fees they can’t afford to pay in the event they overdraw the checking account. Experian® suggests taking the following steps: Conduct a Business Review to ensure that your product offering includes the type of account the CFPB is advocating and your existing core banking platform can operationalize this account Align your checking account prospect and opening procedures to key segments to ensure more consumers are approved and right-sized to the appropriate checking product Enhance your business profitability by cross-selling credit products that fit the affordability and disposable income of various consumer segments you originate These steps will make your journey “back to the future” much less turbulent and ensure you don’t break the bank in your efforts to address CFPB’s well-intentioned focus on check access for consumers.

Time to dust off those compliance plans and ensure you are prepared for the new regulations, specifically surrounding the Military Lending Act (MLA). Last July, the Department of Defense (DOD) published a Final Rule to amend its regulation implementing the Military Lending Act, significantly expanding the scope of the existing protections. The new, beefed-up version encompasses new types of creditors and credit products, including credit cards. While the DOD was responsible for implementing the rule, enforcement will be led by the Consumer Financial Protection Bureau (CFPB). The new rule became effective on October 1, 2015, and compliance is required by October 3, 2016. Compliance, however, with the rules for credit cards is delayed until October 3, 2017. While there is no formal guidance yet on what federal regulators will look for in reviewing MLA compliance, there are some insights on the law and what’s coming. Why was MLA enacted? It was created to provide service members and their dependents with specific protections. As initially implemented in 2007, the law: Limited the APR (including fees) for covered products to 36 percent; Required military-specific disclosures, and; Prohibited creditors from requiring a service member to submit to arbitration in the event of a dispute. It initially applied to three narrowly-defined “consumer credit” products: Closed-end payday loans; Closed-end auto title loans; and Closed-end tax refund anticipation loans. What are the latest regulations being applied to the original MLA implemented in 2007? The new rule expands the definition of “consumer credit” covered by the regulation to more closely align with the definition of credit in the Truth in Lending Act and Regulation Z. This means MLA now covers a wide range of credit transactions, but it does not apply to residential mortgages and credit secured by personal property, such as vehicle purchase loans. One of the most significant changes is the addition of fees paid “for a credit-related ancillary product sold in connection with the credit transaction.”  Although the MAPR limit is 36 percent, ancillary product fees can add up and — especially for accounts that carry a low balance — can quickly exceed the MAPR limit. The final rule also includes a “safe harbor” from liability for lenders who verify the MLA status of a consumer. Under the new DOD rule, lenders will have to check each credit applicant to confirm that they are not a service member, spouse, or the dependent of a service member, through a nationwide CRA or the DOD’s own database, known as the DMDC. The rule also permits the consumer report to be obtained from a reseller that obtains such a report from a nationwide consumer reporting agency. MLA status for dependents under the age of 18 must be verified directly with the DMDC. Experian will be permitted to gain access to the DMDC data to provide lenders a seamless transaction. In essence, lenders will be able to pull an Experian profile, and MLA status will be flagged. What is happening between now and October 2016, when lenders must be compliant? Experian, along with the other national credit bureaus, have been meeting with the DOD and the DMDC to discuss providing the three national bureaus access to its MLA database. Key parties, such as the Financial Services Roundtable and the American Bankers Association, are also working to ease implementation of the safe harbor check for banks and lenders. The end goal is to enable lenders the ability to instantly verify whether an applicant is covered by MLA by the Oct. 1, 2016 compliance date. --- If you have inquiries about the new Military Lending Act regulations, feel free to email MLA.Support@experian.com or contact your Experian Account Executive directly. Next Article: A check-in on the latest Military Lending Act news

For lenders, credit bureau data is vitally important in making informed risk determinations for consumer and small business loans. And the backbone of this data is credit reporting. With the rise of online marketplace lenders, there is a renewed focus on reporting credit data, particularly in light of the rapid growth of this sector. According to Morgan Stanley research, online marketplace loan volumes in the U.S. have doubled every year since 2010, reaching $12 billion in 2014. It is predicted this growth will nearly double by 2020. As more consumers and small businesses flock to online marketplace lenders, these lenders have a growing responsibility to be good stewards of the credit ecosystem, doing their part to support the value of information available for the entire industry – and for their own benefit. After all, failure to report credit data could have an adverse impact on the financial landscape, affecting consumers, small businesses and online lenders themselves. While there are already several online lenders currently reporting credit data, there is still a significant number of the marketplace that do not. So why specifically should marketplace lenders report? 1. Stay One Step Ahead of Regulators. It’s true data reporting is currently voluntary for marketplace lenders. But the Consumer Financial Protection Bureau’s (CFPB) recent activities reflect a growing focus by regulators to advocate for and protect consumers. Voluntary data reporting reflects the spirit of transparency and aligns with many regulatory priorities. By taking proactive steps and reporting data on their own, online lenders can stay one step ahead of regulators, hopefully alleviating the need for new regulations. 2. Gain a Competitive Advantage in the Long Run. Sure, data reporting is about “doing the right thing” for consumers, but it can be good for business too. Online marketplace lenders can gain distinct advantages by reporting. For example, with access to more accurate consumer information, lenders are able to develop and offer more competitive products tailored to the unique needs of their customers. By expanding their offerings, online lenders can differentiate themselves and thereby grow market share. Reporting also enables lenders to emphasize their commitment to consumers as part of their value proposition, demonstrating how they are helping to grow customer credit. Reporting rewards customers with good payment history, allowing them to take advantage of better loan rates and lower fees available to those with exemplary credit scores. This in turn can lead to higher customer satisfaction, loyalty and return business. With access to more complete and comprehensive consumer credit data, online lenders gain a clearer picture of a consumer’s credit worthiness, enabling them to make more informed, and less risky, lending decisions. Reporting also encourages on-time payments. When customers know that lenders report, they are more likely to pay on-time and less likely to default on their debt. 3. Have You Heard of the “Millennials?”  Millennials, and their passion for all things Internet-enabled, are the perfect match for online marketplace lenders. In fact, the latest research from Experian reveals 47 percent of millennials expect to use alternative finance sources in the near future. And 57 percent reported they are willing to use alternative companies and services that innovate to meet their needs. Millennials are clearly more open to nontraditional banking, but at the same time have a greater expectation of transparency, making it all the more important for online marketplace lenders to report credit data. 4. Achieve Data Quality. Complying with Fair Credit Reporting Act (FCRA) data furnishing requirements might seem daunting for marketplace lenders, but there are tools and solutions available to help lenders proactively assess the accuracy of credit data and help identify systemic issues. Marketplace lenders can measure and monitor quality and completeness, dispute metrics, as well as industry and peer-benchmarking data. 5. Qualify More Consumers. With reporting, marketplace lenders can gain access to an invaluable wealth of information that goes well beyond the traditional credit score. Armed with robust analytics, online lenders are in a position to qualify more consumers and small businesses, which creates a significant opportunity to gain long-term customers by improving the overall customer experience. --- Reporting really is a win for marketplace lenders and consumers. In the end, it will contribute to a healthy credit ecosystem and ensure lending decisions are based on the highest quality of information available. For more information about data reporting, including how to start, visit www.experian.com/datareporting. Learn more about data reporting, or about our Online Marketplace Lending track, at Experian's annual Vision Conference in May.

Compliance definitions LOA, CIP, FACTA, KYC — These acronyms seem endless, and navigating compliance can be both confusing and a painful drain on resources. How do you know the best approach for your institution? Should you look at regulations for Know Your Customer (KYC) or the Customer Identification Program (CIP)? What about the levels of assurance (LOAs) or the Fair and Accurate Credit Transactions Act (FACTA) Red Flags Rule? Does the USA PATRIOT Act affect your industry? The myriad guidelines, rules and mandates surrounding fraud compliance are changing the way organizations do business. Let’s start with some brief definitions. CIP/KYC The Customer Identification Program requires banks to form a reasonable belief that they know the true identity of each customer. The CIP must include procedures that specify the identifying information that will be obtained from each customer, along with reasonable and practical risk-based procedures for verifying each customer’s identity. The Know Your Customer provision is a financial regulatory rule mandated by the Bank Secrecy Act and the USA PATRIOT Act. These guidelines focus on prevention of money laundering and the use of financial institutions to finance terrorist activities. This process has three stages: the CIP, customer due diligence (CDD) and enhanced due diligence (EDD). The last two stages address customer risk from an anti–money laundering perspective. LOA/FACTA (Red Flags Rule) Levels of assurance regarding identity focus on the extent to which electronic authentication may be used to verify that the individual identified in the input data truly is the same person engaging in the electronic transaction. This can be a daunting task — even the National Institute of Standards and Technology acknowledges that electronic authentication of individual people is a technical challenge when performed remotely over an open network. To choose the level of assurance that works within your company structure, you must determine what is needed to maintain the internal compliance and risk thresholds for each business requirement. LOAs are based on two categories: trustworthiness of the identity-proofing process and trustworthiness of the credential-management function (which includes technology and implementation/management). There are four LOA levels: Minimal Assurance Moderate Assurance Substantial Assurance High Assurance The FACTA Red Flags Rule requires institutions to establish a program that identifies ecommerce “red flags.” This program should consist of a pattern, practice or specific activity that indicates the possible existence of identity theft applicable to account-opening activities, existing account maintenance and new activity on accounts that have been inactive for two years or more. Don’t be discouraged In this world of compliance regulations that read like alphabet soup, we understand the challenges of meeting regulations while providing a frictionless customer experience. When an organization strikes the perfect balance between compliance and customer service, it has a competitive advantage that can lead to additional revenue opportunities (e.g., profitably acquiring new customers, detecting fraud and reducing charge-offs, minimizing operational costs, and improving operational efficiencies). To achieve this, businesses need cost-effective, flexible tools that allow them to meet current and future guidelines, manage risk and ultimately authenticate as many true customers as possible — all while segmenting out only the real fraudsters and noncompliant identities. You can be assured that new regulations will come, existing regulations will be redefined and communications on how to comply will be difficult to interpret. To find out more about compliance, click here.

Accuracy matters. It matters in dart throwing, math calculations, and now more than ever, in data reporting. The Consumer Financial Protection Bureau (CFPB) issued a bulletin on Feb. 3 warning banks and credit unions that if they fail to meet accuracy obligations when reporting negative account histories to credit reporting companies, the result could be bureau action. As noted in the Fair Credit Reporting Act (FCRA) section 623, data furnishers have an obligation to ensure the accuracy of the information furnished to a Credit Reporting Agency (CRA). Violation of these rules presents a variety of risks, and the regulatory agencies have enforced harsh consequences. Avoiding penalties is certainly a strong incentive for data furnishers to implement a formal compliance management system and data quality program. But there are additional benefits to ensuring accuracy – most notably keeping customers happy and loyal, and maintaining a reputable brand in the marketplace. Today’s consumers increasingly understand the impact of credit scoring and data reporting, and recognize a poor credit score can impact their lives in major ways. Credit is tied to so many milestone financial moments. Securing mortgage loans, auto loans, obtaining low-interest rate interest credit cards and securing private student loans can all be derailed with an unfavorable and inaccurate credit report. Not to mention credit reports can influence one’s eligibility for rental housing, setting premiums for auto and homeowners insurance in some states, or determining whether to hire an applicant for a job. To properly serve customers who simply expect a fair and accurate representation of their financial history, data furnishers must be able to guarantee the credibility of their reported data. Those organizations that cannot ensure accuracy put their reputation at risk and may lose a customer’s trust and business. “Consumers should not be sidelined out of the basic banking services they need because of the flaws and limitations in a murky system,” Cordray said in the bulletin. “People deserve to have more options for access to lower-risk deposit accounts that can better fit their needs.” The CFPB has handled more than 105,000 credit-reporting complaints in its short history, making credit reporting the third most-complained-about consumer issue. By far the most common types of credit-reporting issues identified by consumers is incorrect information on credit report (77 percent).* Certainly these mistakes are not made intentionally. But speak to a consumer battling an inaccuracy, especially someone in the midst of applying for credit for a specific need, and frustrations can soar quickly. All lenders are advised to maintain a full 360-degree view of data reporting, from raw data submissions to the consumer credit profile. Better data input equals fewer inaccuracies. Additionally, there are comprehensive reporting solutions available to assess the accuracy of consumer credit data. The regulatory environment will without a doubt continue to be a hot topic in the media, fueled by announcements such as these by the CFPB, so lenders should take note and identify processes to ensure complete and utter accuracy. It matters in so many ways, so it’s best to make data reporting a priority now, if it’s not already. Source: CFPB August 2015 Monthly Complaint Report

As thought leaders in every industry make predictions for what 2016 will bring, I’m guessing there will be a few constants. New couples will marry. Some couples, sadly, will divorce. Young and old will move – some into first homes – others downsizing or making moves cross-country for work. And waves of individuals will clamor to the latest devices – a new iPhone7, perhaps. The Apple rumors are already flying. Yes, no big surprises, right? But, do you know what all of these very standard life events have in common? These transitions often result in shifts in consumer data, sometimes making people more difficult to track and contact. New last names, new addresses, new phone numbers. Suddenly, the consumer data that companies and lenders have on file are dated, and when it comes time to reach out to these individuals, it’s a challenge to connect. But that is just the beginning. The Federal Communications Commission (FCC) is increasing its efforts to register consumer complaints and taking aggressive actions to stop companies from making unsolicited phone calls. And the penalties are steep. Fines per individual infraction can be anywhere from $500 to $1,500. Companies have been delivered hefty penalties in the thousands, and in some cases millions, of dollars, over the past few years. All have questions and are seeking to understand how they must adjust their policies and call practices. Now those multiple attempts to call and find a consumer can cost you – big time. No more “shotgun” approaches to identifying and using phones. It’s simply too risky. The Telephone Consumer Protection Act (TCPA), enforced by the FCC, has been around since 1991, but regulations have been closely scrutinized over the past year since the FCC announced a new ruling last summer to clarify hot topics. In their July paper, they aim to communicate the definition of an “auto-dialer,” consent-to-call rules, how to address the reassignment of cell phone numbers, and the new requirement for “one call” without liability. In short, the Declaratory Ruling has opened the door to even greater liability under the TCPA, leaving companies who place outbound customer calls at-risk for compliance violations. Some are projecting the TCPA rules will continue to become even more expansive in 2016, so companies must really assess their call strategies and put best practices in place to increase right-party contact rates. Suggestions include: Identify landline and cell phones for TCPA compliance with dialer campaigns Focus on right- and wrong-party contact to improve customer service Score phones or apply cut-off scores based on the confidence of the number or match Scrub often for updated or verified information Establish a process to identify ported phones Determine when and how often you dial cell phones Provide consumers user-friendly mechanisms– such as texting “STOP” or “UNSUBSCRIBE” – to opt-out of receiving TCPA-covered communications. Review the policies and practices of third-party vendors to ensure they are not sending communications violating the TCPA With the huge advancements in mobile technology and the ever-changing digital landscape, it’s challenging to keep up, but regulators are cracking down on violations, and a slew of lawyers are ready to file on behalf of unhappy consumers dialed one-too-many times. Beyond a best-practice review, tools and systems are available to identify the right number for those moving and changing consumers. And I’m sure we can all agree, those life events will continue to happen in 2016. Marriages, divorces, moves, new devices. They’re coming. As a result, it’s necessary to track the resulting changes to consumer data. Only then will you have a shot at avoiding negative customer experiences and fines.

The financial services industry continues to face mounting pressures to meet the highest standards of data reporting and accuracy. New regulations and mandates are introduced regularly, impacting the way companies do business. And a more credit-educated consumer base is seeking insights into their own credit data, providing a separate second of eyes that demand accuracy. Not only has the Fair Credit Reporting Act (FCRA) set requirements on dispute investigation and response, but the Consumer Financial Protection Bureau (CFPB) is also paying close attention. Recent announcements indicate the CFPB wants more information about the credit eco-system to gain more data about consumer disputes. According to the CFPB, it’s a joint problem – “the NCRAA’s, data furnishers, public record providers, and consumers all play roles which affect the accuracy of the information with credit reports.” And it’s not just the big banks that are being targeted with fines. The CFPB has made it clear it will also direct attention to certain nonbanks and financial products. In today’s data-driven environment, there are roughly 12,000-plus data furnishers, resulting in more than one billion pieces of information being updated on a monthly basis. Over 220 million consumers have some form of credit information attached to them, and transactional data is flowing all the time. Fail to update and a furnisher will quickly see flaws in their reporting. In fact, a recent study revealed an estimated 2.1% of contact info goes bad if unattended for more than one month. Clearly, achieving data quality is an ongoing investment for any organization, but companies often lack a clean plan. Some data furnishers fail to report, or elect to report to just one bureau, even though providing better data will result in a more complete and accurate credit profile. So how do you tackle the challenge of data quality? Organizations should consider implementing these six steps: Review data governance. Correct errors in data submissions. Complete an audit of data submissions. Evaluate disputes and resolutions. Compare data to peers and the industry. Review existing policies and processes. Follow these steps and your organization will earn a reputation among both regulators and consumers for clean, credible data. Plus, the investment in better data will reduce the need to resolve future disputes and fines. To learn more about meeting your FCRA responsibilities and best practices around data quality, check out our on-demand webinar or data integrity services site.

Understanding the Impact of New Marketplace Lending Regulations The online marketplace lending sector has enjoyed unprecedented growth these past few years. According to a recent Morgan Stanley research report, the volume of loans extended by online marketplace lenders in the United States has doubled every year since 2010, hitting $12 billion last year. Some analysts speculate this growth will continue at a compound annual rate of 47 percent through 2020. The market’s growth, coupled with new, disruptive lending models, is now prompting regulators in Washington to raise questions about the potential opportunities and challenges for consumers, small businesses, and the safety and soundness of our financial system. Last July, the Treasury Department issued a request for information to better understand the benefits and risks associated with new online lending platforms and other “fin-tech” startups. The Treasury’s RFI sought information about how these entities’ business models differ from traditional lenders, their impact on financially underserved consumers, and ultimately whether the regulatory framework should evolve to ensure the safe growth of this emerging marketplace. They were also interested in how online lenders were assessing credit risk of borrowers. Most comments the Treasury Department received from online lenders focused on the positive impact that innovation in financial services could have on consumers and small businesses. For example, in an open letter to the Treasury, Lending Club Founder and CEO Renaud Laplanche stated his company’s role in “bringing more transparency, removing friction, reducing systemic risk by requiring a match between assets and liabilities, and offering traditional banks … the opportunity to participate on our platform and benefit from the same cost reductions from which our other borrowers and investors benefit.” Laplanche emphasized the benefits to consumers by noting that “over 70 percent of borrowers on our platform report using their loan to pay off an existing loan or credit card balance and report that the interest rate on their Lending Club loan was an average of seven percentage points lower than they were paying on their outstanding debt or credit cards.” For small businesses, Laplanche explained how commercial loans less than $250,000 tend to be underserved by traditional lenders. “Bank loans from $100k to $250k have fallen 22 percent since 2007, during a period when bank loans of $1 million or greater increased by 56 percent,” he wrote. “Our platform’s automated processes allow us to provide smaller commercial loans that are less available more economically than traditional banks can.” Meanwhile, some commenters called for regulators to increase oversight of the marketplace to provide more certainty. In a joint comment letter, the American Bankers Association and Consumer Bankers Association argued that all lenders — regardless of medium by which they deliver loans — should operate under the same rules and standards. They highlighted the numerous consumer protections in place to protect borrowers — from transparency in pricing, to fair debt collection methods,  and data protection — and advocate for these protections to apply in all bank-like activities involving lending or servicing. But what about the Consumer Financial Protection Bureau (CFPB)? The CFPB will take a leadership role to ensure marketplace lenders comply with the fair lending and consumer financial protection laws that the CFPB has authority to enforce. The CFPB has not made any direct notice to the online lending marketplace specifically, but it did issue a notice in October 2014 saying it had no intention of bringing enforcement actions against companies that offer innovative financial products — so long as they benefit consumers. Meanwhile, it is also likely the Federal Trade Commission and state attorneys general will increase their focus on the online lending segment, especially as it relates to how products and services are marketed. The FTC held a symposium on Oct. 30 to examine online lead generation and consumer protection in the lending and education industries.  The FTC workshop raised questions about the potential consumer protection challenges of this advertising medium used heavily by online lenders. In particular, there were calls for greater transparency in the use of lead generation, including more information on the ways consumer data is collected through lead-gen websites and how it is used and shared. Online marketplace lenders should expect to stay under the regulatory spotlight – because that’s what success often brings.  The sector can avoid undue burdens by ensuring compliance with existing laws and adopting and following industry best practices. For more information, visit www.experian.com/marketplacelending.

The Responsible Business Lending Coalition, a group of nonbank small-business lenders, recently announced a regulatory program designed to bring greater clarity to the industry’s pricing and consumer protections, including: The right to transparent pricing and terms The right to non-abusive products The right to responsible underwriting The right to fair treatment from brokers The right to inclusive credit access The right to fair collection practices Industry self-regulation is a good way for market leaders to demonstrate self-discipline and is preferable to legislative or regulatory changes because of its flexibility and ability to accommodate evolving market trends. >> Webinar: Online Marketplace Lending

Our clients are facing three primary issues when it comes to regulatory compliance: time resources knowledge Many are facing Matters Requiring Attention (MRA) and Matters Requiring Immediate Attention (MRIA) and don’t have the staff or the capacity to complete all of the work themselves within tight deadlines. They also want their limited resources to work on internal, proprietary initiatives to grow the business and maximize profit and return. These activities cannot be outsourced as easily as regulatory and compliance work, which is relatively easy to parse out and give to an external third party. Quite often, a level of independent oversight and effective challenge is also a requirement that can easily be solved through the use of an objective, external third party. A lot of the regulations are still relatively new, and there are still many issues and knowledge gaps our clients are facing. They have insight into their own organization only and quite often aren’t aware of or able to leverage industry best practice without the view of an external third party with broader industry knowledge and experience. In terms of best practice, it all really starts with the data, leading to the attributes used in models to create sound risk management strategies, manage capital adequacy, and ensure the safety and soundness of the overall U.S. and global financial system. The integrity of data reporting, dispute management and compliance with all applicable regulatory requirements need to be an enterprise-wide effort. In the area of attribute governance, there are three primary areas of focus: Attribution creation — definitions; logic, code and accuracy; and how to reduce implementation timelines. Monitoring and maintenance — looking for shifts in attributes and their potential impact and facilitating updates to attributes based upon changes in reporting and upgrades to newer versions of attributes as the credit environment changes, such as during the most recent mortgage crisis, where loan modification and associated attributes were created and took on increased importance. And last but definitely not least, documentation — We cannot say enough about the importance of documentation, especially to regulators. Documentation ensures accuracy and consistent application and must record all general conventions and limitations. For model risk management and governance, focus areas should follow the expanded Office of the Comptroller of the Currency (OCC) Guidance from Bulletin 2011-12. This guidance includes expanded requirements for model validations including not just standard back testing, but also benchmarking, effective challenge, sensitivity analysis and stress testing. It also expands the guidance beyond just validation to model development and usage, implementation, governance and controls. In response to these OCC expanded guidance requirements, one of our clients was seeking an industry expert to serve as an independent third party to 1) conduct industry best practice and benchmarking in areas of reject inference methodologies and 2) validate production models used for risk underwriting, line assignment, pricing and targeting. After a full review and assessment, we provided the client with a clear road map to improve the process to conduct reject inference through knowledge transfer and best practices. We established a best-in-class approach to annual model validations on a model inventory consisting of retail, small business and wealth segment portfolios. We also delivered expedited results that also identified alternative methods of validation that assess variability in point estimates, as well as comply with OCC requirements for precision, ranking and population measurement statistics. Through our work, the client was able to leverage Experian to establish a global approach to reject inference methodologies, to augment existing staffing and to offshore resources in a cost-effective manner. There are three primary areas of loss forecasting, stress testing and capital adequacy planning: International —  Basel accord National — U.S. Dodd-Frank Act Stress Testing (DFAST), including Comprehensive Capital Analysis and Review (CCAR) supervisory review Internal — Allowance for Loan and Lease Losses requirements Although there are similarities, there are also important differences among each of these three requirements and practices. For these reasons, most financial institutions in the United States are still providing and managing them separately. This obviously creates a strain on internal staff and resources. One of our clients had an initial compliance strategy in place but did not have the sufficient in-house staff and resources required to create, document and review its modeling and stress testing to satisfy regulators and internal auditors. The organization needed a consultant that could work closely with its in-house team to support sophisticated models that were tailored to meet its specific compliance obligations. We worked closely with the client’s team to provide extensive consulting support for a complex set of loss-forecasting models and other tools, applying industry best practices to fully document the models. Throughout the process, our consulting team discovered and identified content gaps to help ensure that all documentation was complete. We also provided ad hoc analytics to support the client’s model development effort and strategic and tactical guidance on stress testing model development for compliance. This enabled the client to develop primary and challenge models for DFAST’s CCAR requirements, as well as internal stress scenarios. It also provided the client with the following tangible business benefits: balance compliance with maximum profitability and revenue; provided knowledge sharing and best practices to help empower client employees; helped refine models based on feedback from internal and external governance organizations; supported models with academic research to help align the correct model to the correct processes; and provided assistance with model implementation and application. Click here for a recent video I did on how capital-adequacy positions are becoming crucial in analyst recommendations.