Credit Scoring and Regulation B
by Lucy Griffin, BOL Guru
Guru Bios
Question: We have some questions about credit scoring and Regulation B. We do not develop our own score but purchase one from the credit bureau. We also use automated underwriting and the underwriting considers the credit bureau score of the applicant. How does Regulation B apply to using the score if we deny the application?
Answer: Regulation B regulates credit scoring in two ways. First, it governs how an applicant's age may be considered in a credit scoring system. Second, it specifies how reasons for denial are to be selected from scoring systems.
Regulation B generally defines credit scoring as a system that evaluates an applicant's creditworthiness mechanically, based on key attributes of the applicant and aspects of the transaction, and that determines, alone or in conjunction with an evaluation of additional information about the applicant, whether an applicant is deemed creditworthy.
Regulation B applies when the credit scoring system considers the applicant's age. The definition of demonstrably and statistically sound, empirically derived credit scoring system exists to set standards for how age may be considered in the system. If the system does not meet these criteria and does not consider the applicant's age, the system is considered judgmental.
When any credit scoring system is used to deny the application, the reasons for denial must come from the system. This is the case for demonstrably and statistically sound systems, credit bureau scores, and for automated underwriting.
Copyright © 2004 Compliance Action. Originally appeared in Compliance Action, Vol. 9, No. 1, 2/04
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