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Consumer Action finds most agree that rent and utility records could be useful in widening availability of credit, but 96 percent oppose using social media or video habits

Overwhelming majority wants opt-in before information about them is used

Washington, DC—Consumer Action conducted an online poll in late April to gauge consumer attitudes about the use of alternative data (non-loan-related information) in lending decisions. More than 80 percent of respondents agreed that certain payment records—namely rent and utility records—held promise for widening availability of credit if used to evaluate loan applications.

Conversely, 96 percent of respondents balked at the use of social media or video-watching habits to help assess a consumer’s propensity to repay.

While there’s no clear definition for the term “alternative data,” survey respondents were clear that they want companies to get their permission before sharing their behavioral or personal information with others.

An overwhelming majority of consumers surveyed—95 percent—told Consumer Action that companies should ask permission prior to accessing nontraditional, behavioral data for credit analysis.

The results were released in the latest issue of Consumer Action News, examining the benefits and risks of using unconventional data to evaluate consumers in an evolving lending environment.

New sources of information are being eyed to help qualify a broader group of potential borrowers interested in owning homes and qualifying for credit cards and auto loans. This “alternative data” can include rent, cable, cellphone and gas or electric payment histories, typically not found on traditional credit reports.

These nontraditional data sources could show a record of timely, regular payments and hold promise in widening access to credit for those with little or no credit record—so-called “credit invisibles.” LexisNexis estimates that using some alternative data in credit evaluations could give 15 to 20 million additional consumers access to auto loans, credit cards and other bank products.

Other sources of alternative data, such as occupational licenses, bankruptcies, collections activity and property values, are drawn from public records. More than half (55%) of respondents agreed that public records data (property ownership, lawsuits, etc.) could be fairly used to evaluate potential borrowers.

More questionable is the use of alternative data from far more unconventional sources. Now being used in emerging markets and by some U.S. start-ups, these data sources include social media habits, online purchases, payday loan usage, bank account balances and cellphone data, such as how you organize your contacts or how you punctuate text messages.

In its April poll, Consumer Action allowed respondents to freely comment on the use of alternative data to gauge creditworthiness. The responses were clear about what sort of data crossed the line.

•    “It's no one's business but my own how much TV I watch, how often I use social media or what I do on my cell phone,” said one survey participant.
•    “Alternative data [for credit evaluation] should be limited to payments, such as rent, utilities, etc. Video, social media and cell data are not indicative of whether someone will pay their bills.”

Financial technology (fintech) firms already are relying on various forms of behavioral data from our mobile devices to help calculate credit risk. We learned that how often you text, the apps you download and the balances you carry in a mobile wallet could be criteria to assess online loan applicants. “Instead of opening access to credit, incorporating behavioral data into credit analysis could paint an inaccurate, negative picture of certain groups of consumers, leading to unfair conclusions and discrimination,” said Linda Sherry of Consumer Action. “Consumers must have control over how and when their data is used.”

Sherry pointed out that consumers don’t have the ability to see and correct some of the more esoteric alternative data being scraped from their digital footprints. “Current financial regulations, such as the Fair Credit Reporting Act, will need to be re-evaluated to ensure that they sufficiently address accuracy and fairness when controversial data sources are being used,” noted Sherry.

2,410 consumers took Consumer Action’s online poll between April 6-21, 2017. The poll used the online surveying tool SurveyMonkey. For more results see Survey: Don’t use behavioral data to assess credit risk.

For more on how alternative data may affect access to credit for consumers with limited credit options, see our latest issue of Consumer Action News. 

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Consumer Action has been a champion of underrepresented consumers nationwide since 1971. A non-profit 501(c)(3) organization, Consumer Action focuses on consumer education that empowers low- and moderate-income and limited-English-speaking consumers to financially prosper. It also advocates for consumers in the media and before lawmakers to advance consumer rights and promote industry-wide change.

By providing consumer education materials in multiple languages, a free national hotline, a comprehensive website (www.consumer-action.org) and annual surveys of financial and consumer services, Consumer Action helps consumers assert their rights in the marketplace and make financially savvy choices. Nearly 7,000 community and grassroots organizations benefit annually from its extensive outreach programs, training materials and support.