16 Non-Prime Times November/December 2016 nafassociation.com

Accuracy is the Best Policy, No Matter what You’re Reporting

Alternative Data

Whether you are a news reporter or a business extending credit to a cus-tomer, accuracy and timeliness are

some of the most important aspects of your job.

Possibly the most famous case of media inaccuraccy is the Chicago Daily Tribune headlineofNovember3,1948.Thepaperwas backing New York Governor Thomas E. Dewey, a Republican, to defeat incumbent president, Harry S. Truman. Early returns indicated that Dewey would win handily. Washington based correspondent, Arthur Sears Henning, who had successfully pre-dicted the past four of five presidential races, filed his story as a Dewey landslide and the Tribune quickly went to print with the head-line: DEWEY DEFEATS TRUMAN.

Soon it became apparent the race was much closer than thought and after the initial 150,000 copies of the first edition, the paper began to backtrack, placing state races in the headline. Even though the bulk of the multiple runs began to get the story right, two days later, a triumphant Truman held up a copy of the now famous front page for a photo opportunity seen around the world.

Not only did the paper get it wrong, they paid a fairly heavy price for not being accurate in a timely manner.

From this story (and any number of ones being created in this election cycle), you can easily draw parallels to what is happening in terms of financing for the underbanked. There is a uniqueness to data reporting on loan performance of the underbanked customers. No matter the form of non-prime financing, actionable data is being generated on a more frequent basis. Reports with data that has aged 30-60dayscanoftentelladifferentandlessthan accurate picture of what is happening with a particular underbanked customer who is taking out online or short-term loans from alternative sources today.

It’s the volatility of these customers that war-rants more accurate and timely data reporting –nottomentioncompliancethatcoveredloan providers will face with the proposed rule by Consumer Financial Protection Bureau (CFPB) on reporting requirements. When this reporting is done in real-time or as near to instantaneous as possible, the accuracy of loan decisions rises dramatically. When a non-prime customer takes out short-term credit not long after successfully buying a used car, it can signal a customer is in a crunch financially. Both the loan and purchase could have occurred within a few days, and if you’re utilizing data that is aging for a month or two, you aren’t getting an accurate picture that could help you avoid bad credit decisions.

How accurate and timely can the data be?

The answer to the question depends on where it is coming from.

Best industry practices today require com-panies extending short-term, small dollar loans to the underbanked to be more diligent and accurate in documentation and reporting. The idea is to adhere to the CFPB’s overall goal to “ensure that all consumers have access to mar-kets for consumer financial products and ser-vices that are fair, transparent and competitive.”

As an example, when you are looking at alternative data you should seek out an alterna-tive credit bureau that strives to get as close to the combination of timely and accurate data as possible. The overarching goals should be to verify identity, validate credibility and deter-mine credit worthiness. The process should enable timely and accurate reporting and ensure compliance with the Fair Credit Reporting Act’s Furnisher Rule and ultimately reduce financial risk.

As part of the process, the alternative credit bureau should require financial service provid-ers to have their reporting capability validated

during an initial integration. Ongoing report-ing of accurate and substantial data must be posted as close to the occurrence of account activityassoonastechnicallyfeasible–mostcases within hours or not less than daily.

As a further step in achieving timeliness and accuracy, you should try to find an alternative credit bureau that routinely audits tradeline data for inaccurate or invalid consumer infor-mation, invalid tradeline data or duplicate tradelines as well as tradelines not updated in a timely manner or even past due tradelines.

Lookforabureauthatmakesthisasimpleand efficient path and helps the financial service provider to securely report, store and share alternative credit data on underbanked con-sumers. Equally important, is looking for a bureau that offers financial service providers ways to assist their consumers to climb the all-importantcreditladder–anintegralstepto future access to better credit terms and loan opportunities.

The Chicago Daily Tribune was eerily close to getting the story correct. An audit of the voting in1948revealedthatjustaonepercentpopularvote swing for Dewey in key battleground states would have totally changed the electoral college outcome and their initial headline would have been accurate.

But in the world of underbanked credit extension, close but not timely and accurate can not only cost you money in the form of bad credit decisions, it can also put you on the wrong side of the regulators and their require-ments–aheadlinethatnooneislookingtogenerate.

Scott Brackin is vice president, Auto Finance, for FactorTrust. Scott has more than 20 years of experience in the consumer credit industry. He is currently focused on providing innovative infor-mation solutions to automotive finance service providers to drive growth while managing risks.

Scott Brackin