Issuance of Loans to US Clients without Credit Histories

Issuance of Loans to US Clients without Credit HistoriesAbout 10 of the largest US banks will share customer information to help those without credit ratings gain access to credit. This initiative could affect more than 50 million Americans. It seems like banks immitate payday lenders that issue online payday loans TN without credit check.

Major US banks, including JPMorgan Chase, Wells Fargo, US Bank and USB, have agreed to use retail customer checking and savings account information to make lending decisions to customers without credit ratings. Banks will look at the account balances of the applicants, as well as study their history of overdraft use. According to the WSJ, the initiative could be launched as early as this year.

Credit rating is a key indicator for banks, showing the risk profile of future borrowers. It takes into account the history of loan payments, the size of the loans received, the length of the credit history, the combination of different types of loans and new accounts. The ratings are maintained by credit bureaus such as Equifax, Experian and TransUnion. The higher the three-digit rating indicator, the lower the interest on the loan is set by the bank for the borrower. It is very difficult to get a loan from a large bank without a credit rating. Many people cannot begin to build a credit history due to the lack of necessary documents – this applies, for example, to migrants.

Banks accepted the initiative to exchange information at the suggestion of an independent agency under the US Treasury – the Office of the Control of the Currency of the United States (OCC). This is how the financial authorities reacted to the African American protests following the assassination of Jord Floyd last year. The state was interested in expanding the population’s access to financing. OCC has consulted on this issue with representatives of banks, financial services and non-profit organizations.

The OCC confirmed that banks have a plan to expand access to loan, but the details are yet to be finalized.

For several years now, banks have been developing their own risk assessment systems for issuing loans to citizens without credit histories, including those based on information about customer accounts. For example, JPMorgan Chase has issued about 700,000 loans in this way to its unrated clients since 2016. The new initiative is more ambitious.

According to the FICO (the company that issues ratings), 53 million Americans now have no credit ratings, and there are also many citizens with limited ratings. Among them there are often young people who have recently arrived in the United States as migrants or those who have lost access to credit due to financial problems.

In addition to exchanging data with each other, banks are also discussing the possibility of cooperation with other data providers such as Plaid and Fincity. This will take into account the payment discipline of citizens in terms of paying rent and utility bills.