WASHINGTON–A new GAO report recommends that when it comes to the use of alternative data at financial institutions, particularly with banks that have third-party relationships with fintech lenders, there should be a collaboration among federal financial institution regulators, with a focus on the FDIC.
The report indicated that written communication providing specific direction on use of alternative data is required.
The Government Accountability Office report also includes an outstanding 2018 recommendation it made earlier that has not yet been addressed by the FDIC), even though it said, “continued attention to this issue could improve (FDIC’s) ability to more effectively oversee risks to consumers and the safety and soundness of the U.S. banking system.”
The “priority open recommendation” sent to the FDIC by the GAO focuses on the March 2018 recommendation, noting it had called on the deposit insurer to work with other federal banking regulators and the Consumer Financial Protection Bureau to “communicate in writing to banks that engage in third-party relationships with fintech lenders on the appropriate use of alternative data in the underwriting process, including issues to consider when selecting types of alternative data to use.”
‘Specific Direction’ Lacking
The GAO did note the FDIC and the other regulators have issued an interagency statement highlighting potential benefits and risks of using alternative data and encouraged financial firms to use it.
“However, the statement does not provide firms or banks specific direction on the appropriate use of that data, including issues to consider when selecting types of alternative data to use,” the GAO report states.
The GAO called on the FDIC to join with other banking regulators and the Bureau to provide “written communication that gives banks in relationships with fintech lenders specific direction on the appropriate use of alternative data in the underwriting process.”