Model Compliance Doesn’t Have to be a Roadblock

If you’ve ever experienced the demands of a model governance evaluation – either with regulators or internal teams – then you know the importance of having powerful analytics tools readily available to assist you in meeting these demands. Today, more than ever, regulations around credit scoring model compliance are a nuanced and ever-moving target. Regulations may be specific to a certain line of business – or may be general in nature. Regulations are often amended, withdrawn, or re-submitted. Adding to this complexity is the way interpretations of regulations may vary from organization to organization.

In the age of the Consumer Financial Protection Bureau (CFPB) and the Federal Trade Commission (FTC), such complexity and uncertainty can feel like crippling obstacles to implementing the innovative tools you require to succeed.

Fair Credit Reporting Act (FCRA) Compliance, Third-Party Risk and Model Governance

Building solutions that assist in meeting changing regulatory standards should include the following three principles: testing, transparency, and documentation.

Testing: Solutions should be rigorously tested and validated by a cross-functional team of data scientists, industry experts, and legal authorities to ensure that not only are the models conceptually sound but also for compliance with key mandates like disparate impact to protected classes.

Transparency: Consumer transparency, especially for credit scoring models, is a critical consideration. All aspects of a solution, from carefully crafted reason codes to consumer inquiry management, should be designed to be as clear, intuitive, and as accessible for consumers as possible.

Documentation: Even solutions developed with the highest sensitivity to regulatory compliance can struggle in model governance reviews without proper documentation. A strong model compliance solution should include on-demand access to reference manuals, which cover topics ranging from a general compliance overview to providing information to assist in responding to score model governance audit questionnaires. This type of documentation can provide a strong foundation for a governance review.

Optimizing for Risk and Disparate Impact in Fair Lending – From Hurdle to Speed Bump

ID Analytics invests heavily in transparency of documentation and processes that are designed to assist any size of institution in navigating the complex landscape of compliance audits. In fact, ID Analytics has worked with many of the largest financial institutions in the country on both regulatory and internal model governance evaluations to address compliance concerns.