The Government Accountability Office (GAO) is prodding the Federal Reserve System to take action on a GAO recommendation dating back to 2018 on the use of alternative data in underwriting processes.
In GAO’s latest annual report on its priority open recommendations for the Federal Reserve, GAO reiterated that the Fed needs 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.”
GAO said that the Federal Reserve, the Consumer Financial Protection Board (CFPB), and other Federal banking regulators should tackle that issue in tandem.
In 2019, the Federal Reserve along with other banking regulators sent out an interagency statement which detailed the need “on the use of alternative data in credit underwriting.”
As of 2021, the banking regulators told the GAO that they plan on fully implementing the recommendation, but that they “did not have a time frame for completing the guidance.”
GAO told the Federal Reserve that it needs to implement the recommendation fully to be in full compliance with its request.