Response to Information Missing from Consumer Report

In January 2000, the Federal Financial Institutions Examination Council (FFIEC) issued an Advisory Opinion in response to two developments affecting users of consumer reports. [FFIEC Advisory Opinion, January 18, 2000; available as attachment to FDIC FIL-5-2000, January 21, 2000, and OTS TR-227, January 21, 2000.] As the Opinion described it, the developments were that some lenders were not reporting certain credit information to consumer reporting agencies. In particular, some credit card lenders were not reporting information concerning high balance customers. Other lenders were not reporting information concerning “subprime” [higher risk] borrowers. These developments were a product, said the Advisory Opinion, of intense competition for loan customers. The effect of the developments was that important information was missing from consumer reports, making them less reliable as predictors for lenders using the reports.

The Advisory Opinion urged lenders to take into account the fact that important credit information may be missing from consumer reports. Specifically, lenders should:

Assess the effect of incomplete credit bureau information on credit decision processes, including the impact on the predictive ability of credit scoring and other account acquisition and management models. Financial institutions using credit bureau scores and other generic or pooled-data scoring models should obtain information about the impact of the omitted data on the models’ predictive capabilities directly from the vendors for such models.
Develop and implement strategies, such as independent verification of missing data, to mitigate the effect of incomplete credit information. For example, changing cut-off scores, neutralizing or substituting model characteristics, and revalidating or redeveloping models may be appropriate.

[See the FFIEC Advisory Opinion, January 18, 2000; available as attachment to FDIC FIL‑5‑2000, January 21, 2000, and OTS TR-227, January 21, 2000.]