Clarity in Credit Score Formation Act of 2021
This bill requires the Consumer Financial Protection Bureau (CFPB) to regulate credit score models by establishing standards for validating the accuracy and predictive value of these models. The bill also gives the CFPB the authority to prohibit the use of certain factors in credit score models.
The CFPB must report on the impact of the inclusion of nontraditional data in these models.
[Congressional Bills 117th Congress]
[From the U.S. Government Publishing Office]
[H.R. 4112 Introduced in House (IH)]
<DOC>
117th CONGRESS
1st Session
H. R. 4112
To amend the Fair Credit Reporting Act to establish clear Federal
oversight of the development of credit scoring models by the Bureau of
Consumer Financial Protection, and for other purposes.
_______________________________________________________________________
IN THE HOUSE OF REPRESENTATIVES
June 24, 2021
Mr. Lynch introduced the following bill; which was referred to the
Committee on Financial Services
_______________________________________________________________________
A BILL
To amend the Fair Credit Reporting Act to establish clear Federal
oversight of the development of credit scoring models by the Bureau of
Consumer Financial Protection, and for other purposes.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Clarity in Credit Score Formation
Act of 2021''.
SEC. 2. FINDINGS.
Congress finds the following:
(1) The February 2015 report of the Bureau of Consumer
Financial Protection titled ``Consumer Voices on Credit Reports
and Scores'' found that some consumers are reluctant to
comparison shop for loans and other types of consumer credit
products out of fear that they will lower their credit scores
by doing so.
(2) The Bureau of Consumer Financial Protection found that
one of the most common barriers for people in reviewing their
own credit reports and shopping for the best credit terms was a
lack of understanding of the differences between ``soft'' and
``hard'' inquiries and whether requesting a copy of their own
report would adversely impact their credit standing.
(3) The Bureau of Consumer Financial Protection revealed
that consumers with accurate perceptions of their
creditworthiness may be better equipped to shop for favorable
credit terms.
SEC. 3. CONSUMER BUREAU OVERSIGHT OF CREDIT SCORING MODELS.
The Fair Credit Reporting Act (15 U.S.C. 1681 et seq.) is amended--
(1) by adding at the end the following new section:
``Sec. 630. Credit scoring models
``(a) Validated Credit Scoring Models.--Not later than 1 year after
the date of the enactment of this section, the Bureau shall (in
consultation with the Board of Governors of the Federal Reserve System,
the Comptroller of the Currency, the Board of Directors of the Federal
Deposit Insurance Corporation, and the National Credit Union
Administration Board) issue final regulations applicable to any person
that creates, maintains, utilizes, or purchases credit scoring models
used in making credit decisions to establish standards for validating
the accuracy and predictive value of all such credit scoring models,
both before release for initial use and at regular intervals
thereafter, for as long as such credit scoring models are made
available for purchase or use by such person.
``(b) Prohibition.--At least once every 2 years, the Bureau shall
conduct a review of credit scoring models to determine whether the use
of any particular factors, or the weight or consideration given to
certain factors by credit scoring models, is inappropriate, including
if such factors do not enhance or contribute to the accuracy and
predictive value of the models. Upon the conclusion of its review, the
Bureau may prohibit a person described in subsection (a) from weighing,
considering, or including certain factors in, or making available for
purchase or use, certain credit scoring models or versions, as the
Bureau determines appropriate.''; and
(2) in the table of contents for such Act, by adding at the
end the following new item:
``630. Credit scoring models.''.
SEC. 4. CONSUMER BUREAU STUDY AND REPORT TO CONGRESS ON THE IMPACT OF
NON-TRADITIONAL DATA.
(a) Study.--The Bureau of Consumer Financial Protection shall carry
out a study to assess the impact (including the availability and
affordability of credit and other noncredit decisions, the potential
positive and negative impacts on consumer credit scores, and any
unintended consequences) of using traditional modeling techniques or
alternative modeling techniques to analyze non-traditional data from a
consumer report and of including non-traditional data on consumer
reports on the following:
(1) Consumers with no or minimal traditional credit
history.
(2) Traditionally underserved communities and populations.
(3) Consumers residing in rural areas.
(4) Consumers residing in urban areas.
(5) Racial and ethnic minorities and women.
(6) Consumers across various income strata, particularly
consumers earning less than 120 percent of the area median
income (as defined by the Secretary of Housing and Urban
Development).
(7) Immigrants, refugees, and non-permanent residents.
(8) Minority financial institutions (as defined under
section 308(b) of the Financial Institutions Reform, Recovery,
and Enforcement Act of 1989 (12 U.S.C. 1463 note)) and
community financial institutions.
(9) Consumers residing in federally assisted housing,
including consumers receiving Federal rental subsidies.
(b) Additional Considerations.--In assessing impacts under
subsection (a), the Bureau of Consumer Financial Protection shall also
consider impacts on--
(1) the privacy, security, and confidentiality of the
financial, medical, and personally identifiable information of
consumers;
(2) the control of consumers over how such information may
or will be used or considered;
(3) the understanding of consumers of how such information
may be used or considered and the ease with which a consumer
may decide to restrict or prohibit such use or consideration of
such information;
(4) potential discriminatory effects; and
(5) disparate outcomes the use or consideration of such
information may cause.
(c) Consideration of Recent Government Studies.--In assessing
impacts under subsection (a), the Bureau of Consumer Financial
Protection shall also consider recent Government studies on alternative
data, including--
(1) the report of the Bureau of Consumer Financial
Protection titled ``CFPB Data Point: Becoming Credit Visible''
(published June 2017); and
(2) the report of the Comptroller General of the United
States titled ``Financial Technology: Agencies Should Provide
Clarification on Lenders' Use of Alternative Data'' (published
December 2018).
(d) Report.--Not later than 1 year after the date of the enactment
of this Act, the Bureau of Consumer Financial Protection shall issue a
report to the Committee on Financial Services of the House of
Representatives and the Committee on Banking, Housing, and Urban
Affairs of the Senate containing all findings and determinations,
including any recommendations for any legislative or regulatory
changes, made in carrying out the study required under subsection (a).
(e) Definitions.--In this section:
(1) Alternative modeling techniques.--The term
``alternative modeling techniques'' means statistical and
mathematical techniques that are not traditional modeling
techniques, including decision trees, random forests,
artificial neutral networks, nearest neighbor, genetic
programming, and boosting algorithms.
(2) Consumer report.--The term ``consumer report'' has the
meaning given such term in section 603 of the Fair Credit
Reporting Act (15 U.S.C. 1681a).
(3) Non-traditional data.--The term ``non-traditional
data'' means data related to telecommunications, utility
payments, rent payments, remittances, wire transfers, data not
otherwise regularly included in consumer reports issued by
consumer reporting agencies described under section 603(p), and
such other items as the Bureau of Consumer Financial Protection
deems appropriate.
(4) Traditional modeling techniques.--The term
``traditional modeling techniques'' means statistical and
mathematical techniques (including models, algorithms, linear
and logistic regression methods, and their outputs) that are
traditionally used in automated underwriting processes.
<all>
Introduced in House
Introduced in House
Referred to the House Committee on Financial Services.
Llama 3.2 · runs locally in your browser
Ask anything about this bill. The AI reads the full text to answer.
Enter to send · Shift+Enter for new line