Feds Are Open to Use of ‘Alternative Data’ in Loan Reviews

The video discusses the Federal Reserve's encouragement for lenders to use alternative data to assess creditworthiness, especially for those without traditional credit histories. It highlights the potential benefits of improved credit access and the risks, such as privacy concerns and algorithmic bias. The discussion includes examples of alternative data, like bank balances, and the competitive landscape among banks. The importance of data quality is emphasized, with a warning that poor data can lead to poor outcomes.

What is the main reason the Federal Reserve is encouraging the use of alternative data in lending?

• To increase the number of people who can be underwritten

• To reduce the interest rates on loans

• To eliminate the need for credit scores

• To promote the use of social media data

Which type of data is NOT mentioned as a focus for assessing creditworthiness?

• Bank balances

• Social media activity

• Gig economy income

• Education history

What is a potential downside of using alternative data for credit assessment?

• It could invade personal privacy

• It may lead to higher interest rates

• It makes the process slower

• It will decrease the number of loans approved

Why are banks interested in using alternative data?

• To reduce operational costs

• To increase the size of the market they can serve

• To comply with new regulations

• To improve customer service

What is a key concern related to algorithmic models in lending?

• They are too expensive to implement

• They are only as good as the data fed into them

• They are difficult to understand

• They require constant updates