A key part of President Joe Biden’s executive order this month could ultimately make it easier for Americans to qualify for loans and on more favorable terms.
The order — which includes broad reforms for tech, health care, and labor — also directs the Consumer Financial Protection Bureau to issue rules that would allow bank customers to download their banking data and take it with them. That would allow consumers to prove their creditworthiness to lenders outside the traditional credit reporting and scoring system.
“Banking data allows lenders to understand in granular detail what a person’s cash flow is, how much money they have coming in every month, how much they are spending, and how much they have leftover at the end of the month,” said Jesse Van Tol, CEO of National Community Reinvestment Coalition.
A credit score, on the other hand, may not give a full and accurate picture of a person’s ability to pay a loan or credit card, Van Tol said.
“Using your bank data as a record of paying for things that don’t get recorded [on a credit report] — like insurance and rent — may actually show that you do pay bills on time,” Van Tol said.
For instance, a recent study by TransUnion found that rental payments could boost someone’s credit score by 60 points, if that history is included in a credit report. But the problem is that most landlords don’t report those payments to the credit bureaus, so that track record is not used by lenders when considering loan applications.
Similarly, recurring bills like utility payments and streaming subscriptions aren’t automatically included in credit reports. In some cases, they can be added through tools offered by some credit bureaus.
But the track record of these payments appear on bank statements.
“This could signal a move away from ‘black box’ credit reporting to an era when consumers can prove they are responsible enough to borrow and invest because they can provide transactional data to lenders and brokerages themselves,” said Linda Sherry, director of national priorities for Consumer Action.
While the bureau was given the power to give bank customers access to their data in 2010 with the Dodd-Frank Act Section 1033, it has been slow to solidify a rule. According to the regulations docket, the comment on the rule making closed February 2020 and will move on to pre-rule stage by April 2022.