Clarity in Credit Score Formation Act of 2019

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. 1. Short title This Act may be cited as the Clarity in Credit Score Formation Act of 2019 2. Findings Congress finds the following: (1) The February 2015 report of the Bureau of Consumer Financial Protection titled Consumer Voices on Credit Reports and Scores (2) The Bureau of Consumer Financial Protection found that one of the most common barriers for people in reviewing their own credit reports and shopping for the best credit terms was a lack of understanding of the differences between soft hard (3) The Bureau of Consumer Financial Protection revealed that consumers with accurate perceptions of their creditworthiness may be better equipped to shop for favorable credit terms. 3. Consumer Bureau oversight of credit scoring models The Fair Credit Reporting Act ( 15 U.S.C. 1681 (1) by adding at the end the following new section: 630. Credit scoring models (a) Validated credit scoring models Not later than 1 year after the date of the enactment of this section, the Bureau shall (in consultation with the Board of Governors of the Federal Reserve System, the Comptroller of the Currency, the Board of Directors of the Federal Deposit Insurance Corporation, and the National Credit Union Administration Board) issue final regulations applicable to any person that creates, maintains, utilizes, or purchases credit scoring models used in making credit decisions to establish standards for validating the accuracy and predictive value of all such credit scoring models, both before release for initial use and at regular intervals thereafter, for as long as such credit scoring models are made available for purchase or use by such person. (b) Prohibition At least once every 2 years, the Bureau shall conduct a review of credit scoring models to determine whether the use of any particular factors, or the weight or consideration given to certain factors by credit scoring models, is inappropriate, including if such factors do not enhance or contribute to the accuracy and predictive value of the models. Upon the conclusion of its review, the Bureau may prohibit a person described in subsection (a) from weighing, considering, or including certain factors in, or making available for purchase or use, certain credit scoring models or versions, as the Bureau determines appropriate. ; and (2) in the table of contents for such Act, by adding at the end the following new item: 630. Credit scoring models. . 4. Consumer Bureau study and report to Congress on the impact of non-traditional data (a) Study The Bureau of Consumer Financial Protection shall carry out a study to assess the impact (including the availability and affordability of credit and other noncredit decisions, the potential positive and negative impacts on consumer credit scores, and any unintended consequences) of using traditional modeling techniques or alternative modeling techniques to analyze non-traditional data from a consumer report and of including non-traditional data on consumer reports on the following: (1) Consumers with no or minimal traditional credit history. (2) Traditionally underserved communities and populations. (3) Consumers residing in rural areas. (4) Consumers residing in urban areas. (5) Racial and ethnic minorities and women. (6) Consumers across various income strata, particularly consumers earning less than 120 percent of the area median income (as defined by the Secretary of Housing and Urban Development). (7) Immigrants, refugees, and non-permanent residents. (8) Minority financial institutions (as defined under section 308(b) of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ( 12 U.S.C. 1463 (9) Consumers residing in federally assisted housing, including consumers receiving Federal rental subsidies. (b) Additional considerations In assessing impacts under subsection (a), the Bureau of Consumer Financial Protection shall also consider impacts on— (1) the privacy, security, and confidentiality of the financial, medical, and personally identifiable information of consumers; (2) the control of consumers over how such information may or will be used or considered; (3) the understanding of consumers of how such information may be used or considered and the ease with which a consumer may decide to restrict or prohibit such use or consideration of such information; (4) potential discriminatory effects; and (5) disparate outcomes the use or consideration of such information may cause. (c) Consideration of recent Government studies In assessing impacts under subsection (a), the Bureau of Consumer Financial Protection shall also consider recent Government studies on alternative data, including— (1) the report of the Bureau of Consumer Financial Protection titled CFPB Data Point: Becoming Credit Visible (2) the report of the Comptroller General of the United States titled Financial Technology: Agencies Should Provide Clarification on Lenders’ Use of Alternative Data (d) Report Not later than 1 year after the date of the enactment of this Act, the Bureau of Consumer Financial Protection shall issue a report to the Committee on Financial Services of the House of Representatives and the Committee on Banking, Housing, and Urban Affairs of the Senate containing all findings and determinations, including any recommendations for any legislative or regulatory changes, made in carrying out the study required under subsection (a). (e) Definitions In this section: (1) Alternative modeling techniques The term alternative modeling techniques (2) Consumer report The term consumer report 15 U.S.C. 1681a (3) Non-traditional data The term non-traditional data (4) Traditional modeling techniques The term traditional modeling techniques 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

Summary: Clarity in Credit Score Formation Act of 2019 This bill provides that the Consumer Financial Protection Bureau (CFPB) must regulate credit score models by establishing standards for validating the accuracy and predictive value of these models. The bill also gives the CFPB the authority to prohibit the use of certain factors in credit score models. The CFPB must report on the impact of the inclusion of nontraditional data in these models.