National Credit Reporting
Association
and Consumer Federation of America Study Released
The time has finally arrived for the release
of the much-anticipated study, "Credit Score Accuracy
and Implications for Consumers." The study is a joint
effort between the National Credit Reporting Association (NCRA)
and the Consumer Federation of America (CFA) and is a tremendous
accomplishment intended to create a much better future for
our industry, our customers, and the consumers we collectively
serve. For a copy of the study you may download
(Adobe PDF 200KB) it from our website.
Since its inception, one of the main goals of
NCRA has been to positively influence issues that affect the
credit-reporting industry, while being mindful of the consumer's
needs. The primary element that distinguishes NCRA members
is the quality of service they offer both their direct client,
and their client's customer, the consumer. To achieve our
goals we work on legislative issues through grass roots lobbying
and the development of strategic alliances, as NCRA does not
have a professional lobbyist and has never donated a single
dollar to a political campaign fund. In this process, one
of the alliances we developed was with the Consumer Federation
of America, www.consumerfed.org
. The CFA is the largest and most influential consumer advocacy
group in the country. They boast immense governmental support,
high visibility, and the reputation of fighting diligently
for the good of the American public by bringing about fair
and reasonable solutions to consumer issues.
NCRA has long contended that while Automated
Underwriting (AU) systems are excellent tools for the mortgage
approval process, they do contain some shortcomings. Approving
files on credit score driven risk-based pricing models proves
to be extremely time-efficient and reliable for most of the
population. As efficient as the AU systems are, however, they
are far from perfect because the data used to drive the matrices
is not perfect. NCRA believes that the three credit repositories
do an admirable job of keeping between 190 and 200 million
consumer files clean and accurate. Mistakes, however, are
unavoidable. Given the opportunity, independent consumer reporting
agencies are able to remedy situations involving potential
adverse consequences to consumers. There is no substitute
for "human verifications" in rectifying inaccuracies
that an automated system cannot possibly accommodate.
The fault that NCRA finds with the AU models
is that dealing with systems with limited or no human intervention
to assist in the review and re-verification of questionable
credit circumstances, there will be a certain segment of the
population who will be adversely affected through no fault
of their own. Using AU and a credit-scoring matrix that depends
on data that is inconsistent and at times inaccurate, combined
with risk based pricing offers consumers very little recourse
when they are denied or offered sub-prime rates. Our position
seems to be validated by the April 2000 HUD study, Unequal
Burden: Income and Racial Disparity in Sub-Prime Lending in
America that reported sub-prime refinance lending increased
almost 1000% from 1993-1998. This timeframe correlates very
closely with the development, introduction and increased usage
of automated underwriting programs sponsored by Fannie Mae
and Freddie Mac. When reviewing the changes in the credit
documentation for the mortgage approval process during the
timeline of the HUD study, some very compelling issues arise.
Questions related to these issues that must be answered are:
