WASHINGTON (Reuters) - The U.S. consumer financial watchdog agency issued its first “no-action letter” on Thursday to a lending platform that uses unconventional credit-scoring methods, as it seeks ways for consumers with short credit histories to find affordable loans.
The Consumer Financial Protection Bureau told Upstart Network Inc., a Silicon Valley company that looks at information such as education and employment history when deciding to award loans, that it will not initiate supervisory or enforcement actions as long as the company shares information with the bureau about its loans and models.
For more than a year, the bureau has investigated ways to help make loans more affordable for people considered “credit invisible,” or who have little credit history.
It has focused on using alternative data sources such as phone-bill payments to determine those borrowers’ risk of default. It is also looking at how emerging technologies such as artificial intelligence can help lenders make loan decisions.
Because those without credit histories cannot show they are reliable in making repayments, lenders typically charge higher interest and fees to cover the risks of default.
By sending the no-action letter, the bureau said it is helping facilitate innovations without putting the company, which counts Google Executive Chairman Eric Schmidt as one of its major investors, in regulatory limbo.