SubscriberWise Updates on Proposed 'Credit Access and Inclusion Act' [Professional Services Close - Up]
(Professional Services Close - Up Via Acquire Media NewsEdge) SubscriberWise, an issuing consumer reporting agency for the communications industry, announced that the proposed "Credit Access and Inclusion Act" currently assigned to Congress is a risky proposition.
The legislation will result in worse outcomes for the overwhelming majority of the population it intends to help.
According to a release, the analysis of SubscriberWise segmentation technology examined proprietary decision levels created by the issuing CRA to manage the significant population of underbanked prospects who apply for service with its member operators around the country. The analysis contains exclusively SubscriberWise segmentation data from individuals who applied with member operators from 2006 through 2013.
"Approximately eighteen percent of the adult credit consuming population who apply for telecommunications services is non- scorable," said David Howe, president of SubscriberWise. "And that percentage has remained constant for an entire decade. By non- scorable, we're defining consumers who have a file at a national repository (i.e. Equifax, Experian, and TransUnion) but whose credit file fails to generate a credit score. The scoring logic leveraged by SubscriberWise (FICO 8) requires at least one open account that's at least six months old or older and that's been updated by a creditor at least one time during the previous six months. For the vast majority of consumers, these rule thresholds are met with ease.
"So what's the problem with the proposed legislation?" Howe asked rhetorically. "It assumes that the rent and cable payments from underbanked consumers are paid timely. It assumes that landlords and cable operators will overwhelmingly report positive payment behavior to boost otherwise marginal and poor credit records for the majority of this population. Moreover, the legislation infers that a positive tradeline from a rental agency or cable company will generate a favorable credit score for otherwise non-scorable consumers."
The empirical evidence does not support this conclusion.
"The fact is that non-scorable consumers are riskier compared to credit-active consumers. Non-scorable consumers pay late and are disconnected often. It's a fact that non-scorable consumers have an average 50 percent more collections compared to scorable consumers. Among applicants to SubscriberWise member operators, it's also known that underbanked consumers have fewer years of credit experience as reflected by the average age of an underbanked consumer vs. an credit-active consumer file.
"And there's another angle Congress has failed to consider: Reporting payment behavior - which would undoubtedly become an added and costly burden on the call center and staff - has the very likely possibility of adversely impacting consumer credit reports and scores among credit-active individuals. This is especially a concern among an operator's otherwise slow-paying but highly reliable (profitable) customers - many of whom have good credit scores that could be seriously impacted by a single negative entry on their credit report.
"The protocol that operators employ today works incredibly well. It benefits both slow and non-payers equitably," Howe continued. "Operators don't report delinquency on a month-to-month basis. Instead, only after an account reaches several months of non- payment and ultimately becomes a write off, do most operators then send the obligation to a third-party collection agency. It's then that the obligation - if continued to remain unpaid - may become a reported collection on the consumer's credit file.
"In a query of one Midwest operator's subscriber billing and management system, SubscriberWise quantified duplicate applications from every individual who had two or more SubscriberWise inquiries during a 7-year period. The query identified only those consumers who failed to generate a credit score on one application but later generated a FICO score during a subsequent service request (or during an account review inquiry following the initial application). The results were remarkable and revealed that only 4 percent of the underbanked population would move from a high risk decision segment into a low risk - or favorable - SubscriberWise segment. Another compelling fact: the average SubscriberWise decision level was a 'Level 7.' Level 7 subscribers are segmented based on FICO scores in the bottom 6 to bottom 15 percent of the adult credit consuming population," explained Howe.
"The conclusions are unambiguous. When data is sufficient to calculate a FICO score among a previously unscorable consumer, one can anticipate a very low FICO score. And no matter the comparison timeline, the long-term data demonstrates this conclusion. Underbanked consumers remain high risk as evidenced by past due accounts and collection activity reported on credit reports, as well as very low FICO scores generated when data is sufficient. In my experience3 having evaluated more than 50,000 credit reports, there's simply not sufficient evidence that a potentially positive tradeline - among the typically adverse underbanked credit report - would deliver its intended outcome of an improved credit score.
"It's critically important for Congress to avoid making assumptions as it relates to the predictive ability of credit scoring that's long proven highly accurate and reliable," Howe concluded. "Congress must carefully evaluate the impact of this proposed additional reporting. Educating consumers about the benefits of responsible use of credit should be its zeal and pursuit."
SubscriberWise is an issuing consumer reporting agency exclusively for the cable industry.
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