On July 27, the Consumer Financial Protection Bureau (CFPB) released a new blog post, positing that cashflow data, broadly defined as the various inflows, outflows, and accumulated amounts in a consumer’s checking and savings accounts, may provide lenders with a better picture of a consumer’s ability to repay their loans than using a credit score.
To perform its analysis, the CFPB used responses from its 2019 Making Ends Meet survey and the linked Consumer Credit Panel (CCP). The CCP is a 1-in-48 deidentified sample of credit reports from one of the three nationwide consumer reporting agencies, and the survey asked consumers questions about various aspects of financial well-being. The CFPB admitted that the effective sample size was small and the cashflow measures were self-reported proxies.
Nevertheless, the CFPB’s analysis of the small sample found that people who self-report positive cashflow perform considerably better than people who self-report less positive cashflow, even when holding credit scores constant.
Specifically, according to the CFPB:
- People with high accumulated savings (at least $3,000 across their checking and savings accounts) are almost 70% less likely to experience serious delinquency in the following two years after the survey.
- People with positive cashflow (saving money each month and no bank overdrafts) are almost 40% less likely to experience serious delinquency in the following two years after the survey.
- People who reported no trouble paying their bills on time are almost 20% less likely to experience serious delinquency in the following two years after the survey.
The CFPB further emphasized that using positive cashflow data in underwriting may improve access to credit for populations with historically low credit scores. In fact, the CFPB announced it is currently exploring a rulemaking (the § 1033 Rule) aimed at helping consumers share such data with lenders willing to use it in their underwriting.
Although the blog post deals with self-reported cash flow information, the same reasoning could apply to bank account data used by creditors in the application process, which the blog post suggests the CFPB would view favorably. This is reinforced by the 2019 Interagency Statement on the Use of Alternative Data in Credit Underwriting, in which the CFPB (together with other federal regulators) seemed to encourage the use of cashflow information in underwriting.