When reflecting on your previous year, like most people, you probably start inwardly. Did you achieve your personal goals? Family goals? Career goals? Then we expand to the macro – how did your company perform? Your Clients? Your Industry? Your region? The Economy? It was an election year – how tumultuous was the process regardless of the outcome? As you reflect on each aspect of your life, what emotions are being triggered? Satisfaction? Fear? Hope? Excitement? Doubt?
Given the medium and places in which this article appears, almost every reader is on a career path so this type of introspection is common amongst us. We also know that dwelling on the past is never advisable, but a serious review of the short-term is a critical component to laying the foundation for your next year. I’ve been doing this exercise for more than 25 years and have realized that I come to one simple conclusion every year:
UNCERTAINTY is CERTAIN
I am certain that 2017 will not disappoint. It is already turning out to be an interesting year. Regulations continually evolve and with the changing Administration, the implications are numerous.
What is going to happen to Dodd-Frank? The CFPB? As I write this, both are under immense scrutiny by the Trump Administration and change is likely. So what is a lender to do?
Lenders are looking for ways to navigate troubled waters to bring affordable products to market while staying on course with regulatory compliance and afloat profitably.
As I focus my topics on Financial Health, Financial Inclusion, and Disparate Impact, it is unfortunate to note that the segment of credit worthy unscorables – that is, consumers who do not have a traditional credit score from any of the 3 traditional credit bureaus – has grown to 30 million1. 24% of US consumers were unscorable using traditional credit scores.2
Who are these individuals? They tend to be:
- New to credit (the largest generation in history, Millennials, fits in this category)
- Voluntarily inactive (such as retirees who have become debt-free)
- Thin-file/no-file (many of these consumers use cash and/or alternative financial products)
The credit worthiness of these consumers can be (and is) determined by leveraging alternative data. When analyzing these unscorables through the lens of alternative data, roughly 51% were found to have default rates similar to prime consumers.3
There is hope. Lenders need to embrace alternative data. It has been available for years and alternative data is passing muster from the regulatory and compliance offices of lenders throughout the country. One thing is certain, there is no time like now to start putting pressure on the regulatory agencies to better evaluate the efficacy of alternative data.
1 LexisNexis Risk Study, 2013