Pub. 14 2019-2020 Issue 5

WWW.NEBANKERS.ORG 16 • To the extent it is relevant, existing model riskmanage- ment guidance should be considered. • While noting that alternative data may be used to ex- pand access to credit, the agencies encourage respon- sible use of that data. The agencies do not elaborate on what exactly is meant by “responsible use.” One could well suggest that this at least requires banks to evaluate the consequences of using alternative data, not only on their own bottom line, but also on the consumers who will be affected thereby. • The Statement focuses on the benefits of a couple of spe- cific usages of alternative data: automating use of cash flow data and use of alternative data for “second look” programs. For both, the agencies approvingly noted the potential benefits to consumers. With respect to cash flow data, the agencies also commented favorably on its general reliability and accuracy, the fact consum- ers could gain “permission access” to it (which would enhance transparency and consumer control), and that use of cash flow data could be explained and disclosed as may be required by the Equal Credit Opportunity Act and Fair Credit Reporting Act (noting that adverse action notice requirements must be considered). • Underlying its core concern about compliance with applicable consumer protection laws, the agencies remind bankers that their compliance management programs must provide for a thorough analysis of rel- evant consumer protection laws to ensure that bankers understand the opportunities, risks and compliance re- quirements of using alternative data. Data that presents greater consumer protection risks should warrant more robust compliance management, including appropriate testing, monitoring and controls to ensure consumer protection risks are understood and addressed. Although bankers may be direct users of alternative data themselves, an additional area of concern may arise in bank/ For more information, contact Bryan Handlos at Kutak Rock LLP: (402) 346 6000 or Bryan.Handlos@ KutakRock.com. Bryan, a member of Kutak Rock LLP’s banking practice group, concentrates on bank regulatory and contracting matters. fintech partnerships — specifically, how bankers shouldmanage those relationships where the fintech is using alternative data. It is entirely likely that alternative data issues will not surface until after that relationship is established (i.e., after the relevant contract has been signed). Bankers would dowell to consider this possibility in advance to establish clear compliance responsibili- ties in the contract. It may not be either feasible or appropriate to attempt to shift ultimate responsibility away from the bank to the fintech. The fintech should, however, be expected to have specific, concrete responsibilities that the bank can use to help assure the fintech shares the bank’s compliance expectations. The contract should have sufficient teeth to serve as a useful management tool, if needed. Conclusion To the extent that fintech lenders and banks were hoping to receive detailed guidance on the use of alternative data (as they apparently indicated to the GAO they wanted), the Inter- agency Statement will likely fall short. The Statement contains a number of observations that might help a bank get started on its analysis. In the end, however, banks are mostly left to deter- mine for themselves how traditional regulatory considerations should apply to alternative data. Perhaps this is a good thing for bankers that wish to keep their options open and be innovative. That, however, will require a degree of courage to live with some uncertainty given the lack of helpful guidance. Some protection should exist for bankers who have a solid compliance manage- ment program and use it to navigate the continued evolution and modernization of lending in the fintech space.  To the extent that fintech lenders and banks were hoping to receive detailed guidance on the use of alternative data (as they apparently indicated to the GAO they wanted), the Interagency Statement will likely fall short. The Statement con- tains a number of observations that might help a bank get started on its analysis. Counselor's Corner — continued from page 15