Clarity in Credit Score Formation Act of 2019

IB Union Calendar No. 248 116TH CONGRESS 1ST SESSION H. R. 3629 [Report No. 116–307] To amend the Fair Credit Reporting Act to establish clear Federal oversight of the development of credit scoring models by the Bureau of Consumer Financial Protection, and for other purposes. IN THE HOUSE OF REPRESENTATIVES JULY 9, 2019 Mr. LYNCH introduced the following bill; which was referred to the Committee on Financial Services NOVEMBER 21, 2019 Additional sponsor: Mr. CLEAVER NOVEMBER 21, 2019 Reported with an amendment, committed to the Committee of the Whole House on the State of the Union, and ordered to be printed [Strike out all after the enacting clause and insert the part printed in italic] [For text of introduced bill, see copy of bill as introduced on July 9, 2019] VerDate Sep 11 2014 19:58 Nov 21, 2019 Jkt 099200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6652 E:\BILLS\H3629.RH H3629 pamtmann on DSKBC07HB2PROD with BILLS 2 •HR 3629 RH A BILL To amend the Fair Credit Reporting Act to establish clear Federal oversight of the development of credit scoring models by the Bureau of Consumer Financial Protection, and for other purposes. VerDate Sep 11 2014 19:58 Nov 21, 2019 Jkt 099200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6652 E:\BILLS\H3629.RH H3629 pamtmann on DSKBC07HB2PROD with BILLS 3 •HR 3629 RH Be it enacted by the Senate and House of Representa- 1 tives of the United States of America in Congress assembled, 2 SECTION 1. SHORT TITLE. 3 This Act may be cited as the ‘‘Clarity in Credit Score 4 Formation Act of 2019’’. 5 SEC. 2. FINDINGS. 6 Congress finds the following: 7 (1) The February 2015 report of the Bureau of 8 Consumer Financial Protection titled ‘‘Consumer 9 Voices on Credit Reports and Scores’’ found that some 10 consumers are reluctant to comparison shop for loans 11 and other types of consumer credit products out of 12 fear that they will lower their credit scores by doing 13 so. 14 (2) The Bureau of Consumer Financial Protec- 15 tion found that one of the most common barriers for 16 people in reviewing their own credit reports and 17 shopping for the best credit terms was a lack of un- 18 derstanding of the differences between ‘‘soft’’ and 19 ‘‘hard’’ inquiries and whether requesting a copy of 20 their own report would adversely impact their credit 21 standing. 22 (3) The Bureau of Consumer Financial Protec- 23 tion revealed that consumers with accurate percep- 24 VerDate Sep 11 2014 19:58 Nov 21, 2019 Jkt 099200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6203 E:\BILLS\H3629.RH H3629 pamtmann on DSKBC07HB2PROD with BILLS 4 •HR 3629 RH tions of their creditworthiness may be better equipped 1 to shop for favorable credit terms. 2 SEC. 3. CONSUMER BUREAU OVERSIGHT OF CREDIT SCOR- 3 ING MODELS. 4 The Fair Credit Reporting Act (15 U.S.C. 1681 et seq.) 5 is amended— 6 (1) by adding at the end the following new sec- 7 tion: 8 ‘‘§ 630. Credit scoring models 9 ‘‘(a) VALIDATED CREDIT SCORING MODELS.—Not 10 later than 1 year after the date of the enactment of this 11 section, the Bureau shall (in consultation with the Board 12 of Governors of the Federal Reserve System, the Comptroller 13 of the Currency, the Board of Directors of the Federal De- 14 posit Insurance Corporation, and the National Credit 15 Union Administration Board) issue final regulations appli- 16 cable to any person that creates, maintains, utilizes, or pur- 17 chases credit scoring models used in making credit decisions 18 to establish standards for validating the accuracy and pre- 19 dictive value of all such credit scoring models, both before 20 release for initial use and at regular intervals thereafter, 21 for as long as such credit scoring models are made available 22 for purchase or use by such person. 23 ‘‘(b) PROHIBITION.—At least once every 2 years, the 24 Bureau shall conduct a review of credit scoring models to 25 VerDate Sep 11 2014 19:58 Nov 21, 2019 Jkt 099200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6203 E:\BILLS\H3629.RH H3629 pamtmann on DSKBC07HB2PROD with BILLS 5 •HR 3629 RH determine whether the use of any particular factors, or the 1 weight or consideration given to certain factors by credit 2 scoring models, is inappropriate, including if such factors 3 do not enhance or contribute to the accuracy and predictive 4 value of the models. Upon the conclusion of its review, the 5 Bureau may prohibit a person described in subsection (a) 6 from weighing, considering, or including certain factors in, 7 or making available for purchase or use, certain credit scor- 8 ing models or versions, as the Bureau determines appro- 9 priate.’’; and 10 (2) in the table of contents for such Act, by add- 11 ing at the end the following new item: 12 ‘‘630. Credit scoring models.’’. SEC. 4. CONSUMER BUREAU STUDY AND REPORT TO CON- 13 GRESS ON THE IMPACT OF NON-TRADITIONAL 14 DATA. 15 (a) STUDY.—The Bureau of Consumer Financial Pro- 16 tection shall carry out a study to assess the impact (includ- 17 ing the availability and affordability of credit and other 18 noncredit decisions, the potential positive and negative im- 19 pacts on consumer credit scores, and any unintended con- 20 sequences) of using traditional modeling techniques or alter- 21 native modeling techniques to analyze non-traditional data 22 from a consumer report and of including non-traditional 23 data on consumer reports on the following: 24 VerDate Sep 11 2014 19:58 Nov 21, 2019 Jkt 099200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6203 E:\BILLS\H3629.RH H3629 pamtmann on DSKBC07HB2PROD with BILLS 6 •HR 3629 RH (1) Consumers with no or minimal traditional 1 credit history. 2 (2) Traditionally underserved communities and 3 populations. 4 (3) Consumers residing in rural areas. 5 (4) Consumers residing in urban areas. 6 (5) Racial and ethnic minorities and women. 7 (6) Consumers across various income strata, par- 8 ticularly consumers earning less than 120 percent of 9 the area median income (as defined by the Secretary 10 of Housing and Urban Development). 11 (7) Immigrants, refugees, and non-permanent 12 residents. 13 (8) Minority financial institutions (as defined 14 under section 308(b) of the Financial Institutions Re- 15 form, Recovery, and Enforcement Act of 1989 (12 16 U.S.C. 1463 note)) and community financial institu- 17 tions. 18 (9) Consumers residing in federally assisted 19 housing, including consumers receiving Federal rental 20 subsidies. 21 (b) ADDITIONAL CONSIDERATIONS.—In assessing im- 22 pacts under subsection (a), the Bureau of Consumer Finan- 23 cial Protection shall also consider impacts on— 24 VerDate Sep 11 2014 19:58 Nov 21, 2019 Jkt 099200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6203 E:\BILLS\H3629.RH H3629 pamtmann on DSKBC07HB2PROD with BILLS 7 •HR 3629 RH (1) the privacy, security, and confidentiality of 1 the financial, medical, and personally identifiable in- 2 formation of consumers; 3 (2) the control of consumers over how such infor- 4 mation may or will be used or considered; 5 (3) the understanding of consumers of how such 6 information may be used or considered and the ease 7 with which a consumer may decide to restrict or pro- 8 hibit such use or consideration of such information; 9 (4) potential discriminatory effects; and 10 (5) disparate outcomes the use or consideration 11 of such information may cause. 12 (c) CONSIDERATION OF RECENT GOVERNMENT STUD- 13 IES.—In assessing impacts under subsection (a), the Bu- 14 reau of Consumer Financial Protection shall also consider 15 recent Government studies on alternative data, including— 16 (1) the report of the Bureau of Consumer Finan- 17 cial Protection titled ‘‘CFPB Data Point: Becoming 18 Credit Visible’’ (published June 2017); and 19 (2) the report of the Comptroller General of the 20 United States titled ‘‘Financial Technology: Agencies 21 Should Provide Clarification on Lenders’ Use of Al- 22 ternative Data’’ (published December 2018). 23 (d) REPORT.—Not later than 1 year after the date of 24 the enactment of this Act, the Bureau of Consumer Finan- 25 VerDate Sep 11 2014 19:58 Nov 21, 2019 Jkt 099200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6203 E:\BILLS\H3629.RH H3629 pamtmann on DSKBC07HB2PROD with BILLS 8 •HR 3629 RH cial Protection shall issue a report to the Committee on Fi- 1 nancial Services of the House of Representatives and the 2 Committee on Banking, Housing, and Urban Affairs of the 3 Senate containing all findings and determinations, includ- 4 ing any recommendations for any legislative or regulatory 5 changes, made in carrying out the study required under 6 subsection (a). 7 (e) DEFINITIONS.—In this section: 8 (1) ALTERNATIVE MODELING TECHNIQUES.—The 9 term ‘‘alternative modeling techniques’’ means statis- 10 tical and mathematical techniques that are not tradi- 11 tional modeling techniques, including decision trees, 12 random forests, artificial neutral networks, nearest 13 neighbor, genetic programming, and boosting algo- 14 rithms. 15 (2) CONSUMER REPORT.—The term ‘‘consumer 16 report’’ has the meaning given such term in section 17 603 of the Fair Credit Reporting Act (15 U.S.C. 18 1681a). 19 (3) NON-TRADITIONAL DATA.—The term ‘‘non- 20 traditional data’’ means data related to telecommuni- 21 cations, utility payments, rent payments, remittances, 22 wire transfers, data not otherwise regularly included 23 in consumer reports issued by consumer reporting 24 agencies described under section 603(p), and such 25 VerDate Sep 11 2014 19:58 Nov 21, 2019 Jkt 099200 PO 00000 Frm 00008 Fmt 6652 Sfmt 6203 E:\BILLS\H3629.RH H3629 pamtmann on DSKBC07HB2PROD with BILLS 9 •HR 3629 RH other items as the Bureau of Consumer Financial 1 Protection deems appropriate. 2 (4) TRADITIONAL MODELING TECHNIQUES.—The 3 term ‘‘traditional modeling techniques’’ means statis- 4 tical and mathematical techniques (including models, 5 algorithms, linear and logistic regression methods, 6 and their outputs) that are traditionally used in 7 automated underwriting processes. 8 VerDate Sep 11 2014 19:58 Nov 21, 2019 Jkt 099200 PO 00000 Frm 00009 Fmt 6652 Sfmt 6203 E:\BILLS\H3629.RH H3629 pamtmann on DSKBC07HB2PROD with BILLS Union Calendar No. 248 116TH CONGRESS 1ST SESSION H. R. 3629 [Report No. 116–307] A BILL To amend the Fair Credit Reporting Act to estab- lish clear Federal oversight of the development of credit scoring models by the Bureau of Consumer Financial Protection, and for other purposes. NOVEMBER 21, 2019 Reported with an amendment, committed to the Com- mittee of the Whole House on the State of the Union, and ordered to be printed VerDate Sep 11 2014 19:58 Nov 21, 2019 Jkt 099200 PO 00000 Frm 00010 Fmt 6651 Sfmt 6651 E:\BILLS\H3629.RH H3629 pamtmann on DSKBC07HB2PROD with BILLS