Clarity in Credit Score Formation Act of 2021
Bill: H.R.4112 | Sponsor: Rep. Lynch, Stephen F. (D-MA)
Policy area: Finance and Financial Sector

Summary:
Clarity in Credit Score Formation Act of 2021
This bill requires the Consumer Financial Protection Bureau (CFPB) to 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.

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.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Clarity in Credit Score Formation 
Act of 2021''.

SEC. 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'' found that some consumers are reluctant to 
        comparison shop for loans and other types of consumer credit 
        products out of fear that they will lower their credit scores 
        by doing so.
            (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'' and 
        ``hard'' inquiries and whether requesting a copy of their own 
        report would adversely impact their credit standing.
            (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.

SEC. 3. CONSUMER BUREAU OVERSIGHT OF CREDIT SCORING MODELS.

    The Fair Credit Reporting Act (15 U.S.C. 1681 et seq.) is amended--
            (1) by adding at the end the following new section:
``Sec. 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.''.

SEC. 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 note)) and 
        community financial institutions.
            (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'' 
        (published June 2017); and
            (2) the report of the Comptroller General of the United 
        States titled ``Financial Technology: Agencies Should Provide 
        Clarification on Lenders' Use of Alternative Data'' (published 
        December 2018).
    (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'' means statistical and 
        mathematical techniques that are not traditional modeling 
        techniques, including decision trees, random forests, 
        artificial neutral networks, nearest neighbor, genetic 
        programming, and boosting algorithms.
            (2) Consumer report.--The term ``consumer report'' has the 
        meaning given such term in section 603 of the Fair Credit 
        Reporting Act (15 U.S.C. 1681a).
            (3) Non-traditional data.--The term ``non-traditional 
        data'' means data related to telecommunications, utility 
        payments, rent payments, remittances, wire transfers, data not 
        otherwise regularly included in consumer reports issued by 
        consumer reporting agencies described under section 603(p), and 
        such other items as the Bureau of Consumer Financial Protection 
        deems appropriate.
            (4) Traditional modeling techniques.--The term 
        ``traditional modeling techniques'' means statistical and 
        mathematical techniques (including models, algorithms, linear 
        and logistic regression methods, and their outputs) that are 
        traditionally used in automated underwriting processes.
                                 <all>