The Economic Growth, Regulatory Relief and Consumer Protection Act

“Paralyze resistance with persistence.” — Woody Hayes

For those of you who aren’t college football historians, Woody Hayes was the legendary coach who led the Ohio State Buckeyes for 28 seasons, winning five national championships.

His quote seems perfectly appropriate for the important news I am pleased to share with you. On May 24, the president of the United States signed The Economic Growth, Regulatory Relief and Consumer Protection Act (S.2155). Included in the bill is a provision that is intended to finally break the status quo where the government requires lenders to use outdated and unnecessarily restrictive FICO models.

As to Coach Hayes’ quote, when I took the job as president & CEO of VantageScore Solutions in 2006, we were aware that FICO was completely entrenched in many credit categories and that it would be particularly challenging to break into the mortgage market because Fannie Mae and Freddie Mac required lenders to use outdated versions of FICO’s model.

Twelve years after we initially called on Fannie Mae’s president in 2006, and after countless meetings and a Herculean four-year grassroots campaign, we are nearly across the finish line. Indeed, Section 310 of the aforementioned bill mandates that the Federal Housing and Finance Agency (FHFA) develop a process to recognize competitive credit scoring models.

With the passing of this legislation, millions of consumers who have been underserved by the current mortgage finance system may soon have a fairer shot at the American dream of sustainable homeownership. Today’s models are more predictive and more inclusive, and they should be put to work.

We thank the members of Congress for recognizing this problem and seizing an opportunity to create a better system. We also look forward to working with all the stakeholders to ensure that the future marketplace is fair and inclusive and fosters competition.

Senator Tim Scott (R-SC) and Representative Ed Royce (R-CA) were instrumental in this legislation, and their passion for credit score competition and sustainable homeownership is inspiring. Recently, Senator Scott actually followed up the passage of the bill with some comments for the record relating to a recent hearing. His comments were as follows:

The Senate and House have passed my legislation, the Credit Score Competition Act, to create a transparent validation process for which credit scoring models can be accepted by the GSEs.

I think doing so will ultimately benefit creditworthy Americans that are trying to achieve homeownership.

The legislation has the word “competition” in its title, and that’s the key: It was my intent that multiple, statistically sound credit scoring models could be used by the GSEs.

It warrants mentioning that FICO fought (and continues to fight) this effort through an aggressive, expensive and ethically questionable advertising campaign. Despite their onslaught of misinformation and scorched-earth approach, the facts prevail.

This a great win for consumers, lenders, competition and, yes…for VantageScore as well. All we ever wanted was the opportunity to compete with FICO on a level playing field and on the basis of how well our models perform. I firmly believe that we’ll see new model developers enter the competition as well. With this legislation now signed into law, we are one giant step closer to making that happen in the mortgage market.


Barrett Burns

Achieving Sustainable Homeownership

Op-ed by Phil Bracken, as published in DS News

Homeownership—one of the core components of the American dream—is in trouble. Akin to speeding towards a cliff without brakes, America is facing some of the lowest [1] rates of homeownership in 50 years. Meanwhile, the federal government continues to maintain the status quo regarding the credit scoring models that are permitted to usher consumers to the “doorstep” of underwriting approval. The homeowner demographics are changing significantly, but the credit scoring models have not, resulting in the disenfranchisement of potentially millions of Americans.

The government-sponsored enterprises [2] (GSEs), Fannie Mae and Freddie Mac, own or guarantee more than half of the conventional mortgages in the United States. They are currently required to use only scoring models from a single credit scoring entity—FICO [3]—when it comes to screening applicants for eligibility and pricing. Those credit scoring models have remained largely static for nearly 20 years, failing to incorporate modern credit scoring data that works to provide a fuller and more accurate picture of a consumer’s creditworthiness. This excludes millions of consumers from accessing homeownership. New entrants, such as VantageScore, have campaigned for years to compete, arguing that more modernized credit models are critical, but the GSEs’ policy continues to uphold a government-sanctioned monopoly for FICO.

The Federal Housing Finance Agency [4] (FHFA), which regulates Fannie Mae and Freddie Mac, has taken a step in the right direction, recently concluding an RFI [5] event on mortgage credit scoring standards to determine whether to use an updated FICO model (FICO 9), the VantageScore 3.0 model, or a combination of the two. One thing is for certain, however: one of the most effective ways to guarantee a rebound in American homeownership is to nurture credit scoring competition, a solution that is right at our fingertips.

Providing lenders with the option of deciding which brand to use (with practical constraints to avoid “score shopping”) would give credit scoring companies a reason to continue innovating while ensuring scores accurately reflect the ever-changing needs and demographics of America’s future homebuying population. This is especially critical because the Harvard Joint Center for Housing Studies has forecast that approximately 75 percent [6] of new household formations in the period 2015-2035 will be undertaken by minorities, who are often disadvantaged by current scoring models.

America was constructed by those who were given the opportunity to reap the bounties of their hard work, building equity in a home and wealth for their families. Just as competition works as a positive force in nearly every other element of our economy, it should also work to remove the barriers that are holding back the next generation of prospective homeowners from achieving what is core to all Americans: the opportunity for sustainable homeownership.

Do Credit Scoring Systems Consider Child Support?

By John Ulzheimer

Child support payments can go overlooked by people who are not obligated to pay child support. However, it is a fact that many consumers who pay court-ordered child support end up finding a record of those obligations on their credit reports. And like every other type of financial obligation, some consumers don’t make their child support payments, go delinquent, and eventually default, and a record of their increasing level of delinquency can end up on their credit reports.

A debtor may be concerned that a derogatory child support obligation will be reported to one or more of the consumer credit reporting companies: Equifax, Experian and Trans Union. And the debtor’s concern is well founded. Child support accounts, or “trade lines,” are commonly reported to the credit reporting companies.

How Much Will Child Support Hurt My Credit Scores?

This is an area where the story regarding defaulted child support payments diverges from that of other defaults on credit-related obligations reported by garden-variety financial services companies, like card issuers or installment lenders. Child support obligations can make their way to a consumer’s credit reports in a variety of ways.

First, child support delinquencies can be reported to the credit reporting companies by the state or local child support agency or by the child support enforcement organization. When reported this way, the derogatory child support obligation appears as a tradeline, just like reports for credit cards and installment loans. If child support is reported as a tradeline, then credit scoring systems do NOT consider it when calculating credit scores.

Second, child support obligations that go into default can be referred to a third-party debt collector or collection agency. It is common for these third-party debt collectors to report the defaulted debt to one, two or all three of the credit reporting companies. If a child support obligation is reported as a collection rather than as a tradeline, then credit scoring systems DO consider it when calculating credit scores.

The extent to which a child support collection will impact credit scores will vary by individual. In some cases, the collection report will be immaterial because so much other, unrelated negative information is already being reported about the consumer. In other cases, the collection will have a substantial negative impact because the consumer has no other derogatory information on his or her credit reports.

Finally, if a parent is sued by the other parent for nonpayment of child support and he or she loses in court, then a civil judgment will be filed against him or her. Such judgments are public records, which means that anyone can see them if they so choose. And while judgments no longer appear on consumer credit reports and can’t negatively impact your credit scores, lenders certainly have other ways to obtain such judgment information.

Of course the best course of action if you have an obligation to pay child support is to make sure your payments are made on time, all the time. That’s smart advice for all payment obligations, not just child support. Making payments on time is the absolute best way to prevent negative and potentially score-damaging information from appearing on credit reports.

Disclaimer: The views and opinions expressed in this article are those of the author, John Ulzheimer, and do not necessarily reflect the official policy or position of VantageScore Solutions, LLC.

Crunching Dollars and Planning Weddings

Attending most weddings, with the exception of your creepy uncle’s third marriage, is great. You get to eat free food, dance to music, and leave without having to take part in the cleanup or the costs.

It gets a little different when you’re the one footing the bill. Then you’re confronted with 127 different invitation styles, a guest list that keeps growing and awkward phone calls to cousins to tell them they can’t bring their bratty 7-year-old twins.

Falling in love might have been easy, and making the decision to spend the rest of your life together was probably a no-brainer. However, celebrating your love and funneling all that joy into one beautiful ceremony and one memorable party is where things get a little more complicated.

As a leader in creating credit scoring models and educating consumers on credit, VantageScore Solutions shares how important it is for couples to agree on how to manage their finances.

So, let’s get into it and look at some of the financial topics you and your partner should go over.

Paying for your wedding

No doubt how to pay for your dream wedding will be one of the first conversations you’ll have with your loved one. Some people have months, sometimes even more than a year to plan and save up for the big day. Other times you may need to make a deposit or pay for something upfront and you might not have the cash to do it.

This is when you reach for your credit card.

Even if you don’t plan to use a credit card, it’s more than likely you’ll have to put some things on credit. This might include just about anything you purchase online, from the cute decorations you find on Etsy to the novelty gifts you find on Amazon. In addition, many venues require you to have a credit card on file.

The point is, it’s likely that at some point you’ll use credit to pay for your wedding. When you do this, both you and your partner need to be aware of the potential perils of racking up debt. Provided you can responsibly manage the debt and have a plan to do so, your credit score won’t decline, which can lead to more purchasing opportunities in the future.

But first, you need to talk about credit with your partner.

The talk

Talking about credit might not exactly be a champagne and strawberries moment, but it is probably one of the most important discussions you can have.

Because it might be hard to get started on this topic, many couples find it’s easier to start by taking the Credit Score Quiz. This 12-question quiz is easy to take and can do a lot to reveal the knowledge gaps you and your partner may need to fill.

While the quiz is a great way to get started, resources like The Score, a monthly newsletter from VantageScore Solutions that covers all things credit, can help you continue your conversation and guide you on your journey.

So, while you’re debating what shade of off-white is right for your invitations, take the time to talk and use these credit-related resources. After the big day has come and gone, you’ll be glad that together, both of you were smart about your finances.

5 Questions with Nat Hoopes

Nat Hoopes is the executive director of the Marketplace Lending Association (MLA) where he is responsible for overseeing the strategic direction and day-to-day operations of the MLA, as well as communicating with the public and policy makers to educate them about“Feb2018” > marketplace lending. The MLA was founded in 2016 by The Prosper, Funding Circle and Lending Club. Since its inception, Hoopes has established a D.C. office and expanded  the membership base to include other U.S. lending platforms that are committed to responsible innovation.

Prior to working at the MLA, he was the Executive Director at the Financial Services Forum in Washington D.C., where he worked on key policy issues affecting the nation’s largest financial firms. He has spent more than a decade working in financial services and public policy, and played a key policy role on Capitol Hill in the wake of the financial crisis, including in the development and bipartisan negotiation of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. Hoopes also worked on developing legislation to expand opportunities for small businesses and startups through equity crowdfunding as part of the Jumpstart-our-Business-Start-Ups (JOBS) Act.

We caught up with Mr. Hoopes at the recent Consumer Credit Summit at Card Forum, and heard about the latest in marketplace lending…

The MLA has been growing with new members lately, including SoFi, PWC, LendingPoint and more. What does your organization’s growth have to say about the industry itself?

 The industry is incredibly innovative, but it’s also maturing. While they are still fierce competitors, I think many of these companies are now focused on working together wherever possible to achieve some core public policy objectives. The MLA also sets high standards and best practices, and provides resources for policymakers on behalf of the whole industry.  Some of the more mature companies like PWC and Experian who are MLA Associate Members are bringing perspective from a certain vantage point in the marketplace lending ecosystem and can share insights with some of these lending companies. Overall, I’ve been impressed with how the industry has dealt with both the ups and the downs, and has continued to grow and is delivering great products to borrowers and new opportunities to investors.

 Since marketplace lending is a relatively young industry, how are you approaching the work of the Association?

The key challenge for a young industry dealing with Washington and state capitals is to be both nimble and to be transparent. You can’t achieve any kind of policy change if the decision-makers don’t know who you are and what you are trying to achieve. First, we’ve really worked hard to build trust with policymakers by demonstrating how our loans are helping people. We can show how our borrowers save money via lower interest rates, how borrowers save when they consolidate and get on top of their credit card debt, how important it is to get access to capital to expand a small business or to to pay for higher education. Overall, the biggest obstacle the industry faces in the regulatory sphere is the overlapping state/federal framework that introduces a lot of challenges for young companies. The MLA is helping members attack that challenge in a number of ways, but the key is to continue to make the case for a level playing field with the incumbents to promote healthy competition.

 What is the current industry breakdown of loans that are acquired via marketplace lending (i.e., mortgage, student, small business, point-of-sale etc.)? And do you see any trends in marketplace lending in these loan categories?

It’s sometimes a bit hard to get a precise estimate on the various categories, but in the consumer space, you can look at the growth in deal activity to get some hard numbers. For the established platforms, such as Lending Club, SoFi and Prosper, we see a consistent issuance of securitizations every year. Looking at data from the data tracker dv01, it’s clear that investor appetite for these securitizations has grown, leading to an increase in the total securitized balance. Prior to 2015, there were few players in the space, and only a handful of consumer unsecured securitizations. 2015 and 2016 saw several new issuers enter the space, including Avant and Marlette. 2017 was the highest yet, reaching $13.6 billion of securitized consumer unsecured loans, across a number of platforms. According to PeerIQ, seven marketplace lending securitizations priced in the first quarter of 2018, totaling $4.3 billion, the 2nd highest level of quarterly issuance, representing 34% growth YoY.  To date, cumulative issuance equals $33.4 billion across 114 deals. Earlier this year, there were roughly $25 billion in marketplace unsecured consumer loans outstanding. We are also really seeing the growth of the point-of-sale category with companies like Affirm and small business lenders like Funding Circle who have an international footprint.

 How does marketplace lending capitalize on loan opportunities that traditional banks cannot?

It really depends – in small business lending, a lot of banks have a hard time serving small loan sizes because of the expense of the branch underwriting process. Small business owners often want to borrow quickly, they don’t want to waste a lot of time at a branch trying to get a loan, only to wait for a decision and find out they got rejected and now need to start over. On the consumer side, sometimes borrowers have many options for credit where a marketplace lender might simply be offering faster execution and a better interest rate in a personal loan than they had on a credit card. Then there are tens of millions of “thin-file” borrowers who have never defaulted on a loan but are still struggling to break into what we think of as prime credit categories of loan products. Marketplace lending platforms often use more data and more risk based pricing to bring good products to responsible people who just don’t have much of a credit history.  In student loan refinancing, it’s an entirely new market that was created five or six years ago by marketplace lending firms who saw a space that traditional banks were not serving.

What is on the regulatory and/or legislative agenda for the MLA?

First, because of the many partnerships between banks and marketplace lending platforms, the MLA has helped organize an approach to a huge range of government bodies, from the federal banking regulators – OCC, the Fed, the FDIC, to the SEC, to the CFPB and the state banking supervisors (CSBS). We’ve spent a good deal of time working through the Madden v Midland fallout — a court case that did not involve marketplace lending. We’ve done some work around the potential federal bank charter options, looked at areas for recalibration on certain regulations, and responding to state level licensing and reporting proposals. We are working on legislation to promote IRS data access modernization, so that applicants for loans can seamlessly share verified annual income information if they choose to. Another initiative that our industry is starting work on is promoting high speed internet access for underserved rural and urban communities.

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