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Informational Memorandum
Subject:Added Guidance on Credit Bureau Reporting
Date of Memorandum:04/06/2000
Expiration Date:
Signed By:Smith, Roland
FCA Contact Person:Holland, Tom
Contact Phone:703-883-4484
List of Attachments:FIL-5-2000 Consumer Credit Reporting Practices


April 6, 2000

To: Chairman, Board of Directors
Chief Executive Officer
Each Farm Credit System Institution

From: Roland E. Smith, Chief Examiner /s/
Office of Examination

Subject: Added Guidance on Credit Bureau Reporting

On August 10, 1999, we issued an Informational Memorandum titled “Credit Bureau Reporting” to raise Farm Credit System (FCS) institutions’ awareness that some commercial banks were only partially reporting borrower information to credit bureaus. Such a practice could have safety and soundness implications for FCS institutions that use credit bureaus in their lending programs. Information obtained during the past 6 months suggests the practice of partial reporting to credit bureaus may be more widespread and involve other types of financial institutions.

Attached is a copy of Financial Institution Letter 5-2000, issued by the Federal Deposit Insurance Corporation, which transmits an advisory dated January 18, 2000, titled “Consumer Credit Reporting Practices” issued by the Federal Financial Institutions Examination Council (FFIEC). These documents contain information that may prevent your institution from incurring unnecessary risk.

As mentioned in the FFIEC advisory, “Credit bureau information provides a useful and efficient means for financial institutions to collect data used to assess the financial condition, debt service capacity, and credit worthiness of retail borrowers.” However, the reliability of credit information for prudent credit decisions is contingent upon the completeness of the credit bureau’s files.

FCS institutions should have processes in place to effectively identify and compensate for missing data. Institutions that do not modify their credit risk management processes to compensate for omitted data in credit bureau reports could inadvertently expose themselves to increased credit risk. Therefore, in our examinations of FCS institutions that rely on credit bureau information, we will determine if processes and procedures are in place that compensate for missing or incomplete data. We believe the following actions, as noted in the FFIEC advisory, should assist you in reaching a prudent lending decision and prevent you from being exposed to undue credit risk:

Assess the effect of incomplete credit bureau information on credit decision processes, including the impact on the predictive ability of credit scoring and other account acquisition and management models. Financial institutions using credit bureau scores and other generic or pooled-data scoring models should obtain information about the impact of the omitted data on the models’ predictive capabilities directly from the vendors for such models.

Develop and implement strategies, such as independent verification of missing data, to mitigate the effect of incomplete credit information. For example, changing cut-off scores, neutralizing or substituting model characteristics, and revalidating or redeveloping models may be appropriate.

If you have any questions regarding this document, please call Thomas M. Glenn at (703) 883-4412, or correspond on the Internet at e-mail address