NEW YORK–Some of the largest U.S. banks plan to begin sharing data on customers’ deposit accounts as part of a government-backed initiative to extend credit to people who have traditionally lacked opportunities to borrow.
JPMorgan Chase, Wells Fargo, U.S. Bancorp and other major banks say they will factor in information from applicants’ checking or savings accounts at other financial institutions to increase their chances of being approved for credit cards, the Wall Street Journal reported, citing people familiar with the initiative.
The pilot program is expected to launch this year.
“It is aimed at individuals who don’t have credit scores but who are financially responsible,” the Journal reported. “The banks would consider applicants’ account balances over time and their overdraft histories, the people said.”
‘Significant Change’
The effort, if successful, would mark a significant change in the underwriting tactics of big banks, which for decades have enshrined credit scores and credit reports as the main tools to determine who gets a loan, noted the Journal analysis. The report pointed out some 53 million adults in the U.S. don’t have traditional credit scores, according to Fair Isaac, creator of FICO credit scores.
As credit unions are aware and as the Journal reported, many are often limited to payday loans and other costly forms of credit. Moreover, Black and Hispanic adults in the U.S. are more likely than white or Asian adults to lack credit scores, according to a 2015 report by the Consumer Financial Protection Bureau.
JPMorgan, Bank of America Corp. and other big banks in recent years developed risk models based on their own customers’ bank-account activity to approve financing for applicants with limited or no credit histories, some of the people told the Journal. That has resulted in credit-card approvals for about 700,000 additional customers at JPMorgan alone since 2016, some of these people said.
‘Further Reaching’
“The new pilot program is designed to be further-reaching and more organized,” the report states. “About 10 banks agreed to exchange data, according to one of the people familiar with the matter, an unusual level of collaboration. JPMorgan, for example, might approve a credit-card application from a person who has a deposit account at Wells Fargo but doesn’t have a credit score.”
According to the Wall Street Journal, the plans grew out of Project REACh, or the Roundtable for Economic Access and Change, an effort launched last summer by the Office of the Comptroller of the Currency.
“After protests following the killing of George Floyd in police custody, the OCC convened bankers, financial-technology executives and nonprofit leaders to brainstorm on how to increase credit access to historically disadvantaged communities,” the Journal explained.
JPMorgan is expected to be the first to use the deposit-account data in evaluating credit-card applicants. As soon as this fall, the bank plans to start approving applications based on those inputs from the other banks, the Journal said.
‘Not a Hail Mary’
“It’s not a Hail Mary,” Marianne Lake, chief executive of consumer lending at JPMorgan, told the publication. “It’s something that we know works.”
The Journal added the banks are discussing using the main credit-reporting firms as well as Early Warning Services as the conduits for this data-sharing, the people said. Early Warning Services is a bank-owned organization that oversees the Zelle money-transfer network.
“The bank-account data will be reviewed after banks try to check applicants’ credit scores and find that they don’t have one, according to people familiar with the matter,” the Journal stated. “Not having any returned checks, for example, could improve a person’s chances of being approved.”
In addition, the Journal said the banks are also discussing eventually working with other data providers and aggregators, such as Plaid Inc. and Finicity, to consider an applicant’s history paying rent and utility bills, some of the people said, adding that the banks decided to start with deposit-account data because it is more widespread and easily available.