Consumer Credit Reporting Practices
February 7, 2000
Circular No. 11228

FFIEC Advisory Letter

To the Chief Executive Officers of All State Member Banks and Bank Holding Companies in the Second Federal Reserve District:

The federal banking agencies - Office of the Comptroller of the Currency, Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, National Credit Union Administration, and Office of Thrift Supervision - have issued an advisory letter concerning the lack of reporting of customer credit lines or high credit balances to credit bureaus by some financial institutions. In the letter, the agencies also stated that some lenders have not reported any loan information on subprime borrowers, including payment records. The agencies indicated that they were advised that the lack of reporting is primarily the result of intense competition among lenders.

"Institutions that do not modify their credit risk management processes to compensate for omitted data in credit bureau reports could inadvertently expose themselves to increased credit risk," said the agencies. "Credit bureau information provides a useful and efficient means for financial institutions to collect data used to assess the financial condition, debt service capacity, and creditworthiness of retail borrowers."

The agencies expect banking institutions to strive to resolve issues related to consumer credit reporting in a way that supports both the safety and soundness of the institutions' credit risk management and consumer access to credit. The agencies said that financial institutions, when appropriate, should take these actions:

Assess the effect of incomplete credit bureau information on credit decision processes, including the impact on the predictive ability of credit scoring and other account acquisition and management models.

Develop and implement strategies to mitigate the effect of incomplete credit information.

Any questions should be directed, at this Bank, to the member of the portfolio management team responsible for your organization.