Lenders are Looking to Phone Data to Check Consumer Creditworthiness – Does This Violate the FCRA?

By The Kim Law Firm, LLC

Millions of people around the world use their cell phones to accomplish everything they would on a computer and more. From sending text messages, paying bills, sending emails, checking Facebook , and shop, just to name a few. Phone data contains traces of pretty much everything we do. Outside of the United States, some financial institutions are turning to consumer phone company data to evaluate a person’s creditworthiness with the goal of reaching consumers that may not have bank accounts.

How Can Cell Phone Data Determine Creditworthiness?

Financial institutions can evaluate calling and texting patterns and use that information in credit decisions. These financial institutions believe these consumer patterns can help predict a person’s credit risk. However, there is a concern that such data could be used to discriminate against a potential borrower. For example, if a potential borrower frequently communicates with a person or entity that has a track record of bad credit, the financial institution may show bias and choose to deny a person credit simply because of who that person communicates with.

This cell phone data “risk assessment” raises significant privacy concerns. While consent to release phone company information is required before such data can be shared, that does not safe guard against situations where a person is unaware that he or she provided consent for the release of this information.

Additionally, the sale of cell phone company data is a very lucrative business that could generate as much as $1 Billion each year, so there is certainly an incentive to use this type of credit assessment — at least for countries outside of the United States that are currently engaging in this practice.

Is This Allowed in the United States?

Since this article was written, alternative data has entered mainstream U.S. underwriting: bank-account cash-flow data, rent, utility and telecom payment history, and, for some lenders, device and behavioral signals. Using such data is not in itself a violation of the Fair Credit Reporting Act. The Act attaches at two points. First, when the data is assembled and sold by a consumer reporting agency, the report is a consumer report: it may be obtained only for a permissible purpose, the agency must follow reasonable procedures to keep it accurate, and you have the right to see it and to dispute it. Second, when a lender denies credit or offers worse terms because of it, the adverse action notice must name the agency that supplied the information so that you can request the file and dispute what is wrong. The practical risk is the same one that appears on ordinary credit reports: data that belongs to someone else, or that is out of date, being scored as though it were yours.

If a report you have never seen cost you credit

What I look for first is the adverse action notice. If a lender turned you down or priced you higher and the notice names an agency you have never heard of, that agency owes you a copy of its file on request, and the file is where the error usually is. Send me the notice and the file; I read them against what the Act requires and, where the data was inaccurate or was obtained or sold without a permissible purpose, bring the claim. Someone pulled your credit and had no right to covers pulls you never authorized, and the credit report errors page covers how a claim works. An FCRA claim must be filed within two years of the day you discovered the violation, and never more than five years after it happened. I review the file at no cost and bring these cases on contingency: you pay nothing unless we win.

Sources: 15 U.S.C. §§ 1681a(d) (definition of a consumer report), 1681b, 1681e(b), 1681g and 1681m (adverse action notices); Consumer Financial Protection Bureau, Request for Information Regarding Use of Alternative Data and Modeling Techniques in the Credit Process, 82 Fed. Reg. 11183 (Feb. 21, 2017).

Background source (2016): Bloomberg, “No Credit History? No Problem. Lenders Are Now Peering at Phone Data”.

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