CFPB Finds Cashflow Data to Be Predictive of Delinquency

Most loan underwriting uses credit reporting data to evaluate an applicant’s repayment risk, but the CFPB recently suggested that cashflow data (defined as various inflows, outflows, and accumulated amounts in checking and savings accounts) may also be predictive of serious delinquency.  The CFPB analyzed consumer responses from its Making Ends Meet survey and found that people who self-report positive cashflow are less likely to become seriously delinquent than people who self-report less positive cashflow, even when holding credit scores constant.  Accordingly, the CFPB analysis suggests that cashflow data may help lenders better identify borrowers with low likelihood of serious delinquency.

First, the CFPB analyzed the delinquency rate of people with relatively high accumulated savings, meaning people who reported at least $3,000 across their checking and savings accounts, or who could cover at least three months’ worth of expenses if their household lost its primary source of income.  Second, the CFPB considered people who reported saving money each month and who did not have any bank overdrafts.  Lastly, the CFPB analyzed the delinquency rate of people who reported paying their rent, mortgage, utilities, and regular household expenses on time.

The data for all three cashflow proxies shows that people with positive cashflow are less likely to experience serious delinquency than people with less positive cashflow.  However, the study was limited by its small sample of survey respondents and only the high accumulated savings cashflow proxy was statistically significant. 

The CFPB believes that more research is needed to understand how using positive cashflow data in underwriting may enable better predictions about a person’s ability to repay their loans.  It notes that there are ongoing debates regarding the equity and fairness of traditional credit scores, and that using cashflow data in underwriting may improve access to credit for populations with historically low credit scores.  The CFPB also notes that it is undertaking rulemaking to help consumers share cashflow data with lenders willing to use it in their underwriting.