Always had a problem with risk-based lending at credit unions for several reasons:
|Risk-based lending...Baaaah, baaaah...|
- Too impersonal - little room for exceptions, nor for mercy.
- Credit score decisioning is based on a false statistical model - correct at the macro level, unfair and abusive at the micro/individual member level.
- Pricing "for risk" substantially overcharges the vast majority of consumers in the higher risk brackets.
- Risk-based pricing is a subsidy for the more affluent.
- Charging the poor more - unjustly - increases the risk of default, defies logic and all sense of fairness.
(....but other than that I have few concerns about the practice.)
|A Legal Opportunity... For Lawyers!!!|
That time may be at hand! First, notice that the CFPB has started to bandy that phrase - disparate impact - around a good bit on several consumer financial issues. But, perhaps. of more immediate interest may be the following article from the CU Journal: "How To Drill Down Into Your Portfolios." Particularly this quote from the author who works for - you don't say! - a credit bureau:
"The article promotes the "importance of trended data" in risk rating ... "this requires the ability to trend consumer credit data, identify specific member metrics, and track those changes over time. The most successful lenders have incorporated these metrics into their day-to-day processes. They consider trending one of the most important and effective techniques used to vector behavior and segment appropriately."
So far so good, it's just another infomercial, but then: "By quantifying a direction and magnitude of change, lenders are finding that while two members might have the same credit score and credit card debt today, they fall within markedly different risk profiles."
Lenders are finding: "Markedly different risk profiles,... same credit score?!!!" ( That spells: d-i-s-p-a-r-a-t-e i-m-p-a-c-t...!)
Your Honor, I rest my case....
(Get out the checkbook...!)