LexisNexis Risk Solutions Report Shows Suppressing Liens and Judgments Intelligence Greatly Lessens Credit Risk Decisioning Accuracy. Report Measures Effects on Businesses Two Years after Removal of Tax Liens and Civil Judgments Data from Consumer Credit Reporting
LexisNexis® Risk Solutions revealed that the lack of tax liens and civil judgments information on consumer credit reports places lenders and creditors at a serious disadvantage when assessing consumer creditworthiness. The LexisNexis Risk Solutions study, “How Suppressing Liens and Judgments Intelligence Decreases Decision Accuracy: Impact Report,” comes approximately two years after the three major credit bureaus began suppressing liens and judgments data as part of the National Consumer Assistance Plan implementation, which went into effect in July 2017.
Without liens and judgments intelligence, lenders and creditors have an incomplete picture of consumer risk, resulting in greater exposure to business losses. The report shows that in a large sample of credit card and auto loans, consumers with liens and judgments represented only 6% of approved population but accounted for 15% of defaulters. While those with liens and judgments represent a relatively small portion of the overall population, they account for a disproportionate percentage of risk.
Key Findings from the Report
- A consumer with a lien or judgment against them over-scored by 16 points on average, meaning their actual default rate is higher than their score would indicate.
- In auto lending, those with a lien or judgment who had a credit bureau score above 700 defaulted at two and half times the rate than consumers without a lien or judgment.
- Out of a sample of only 1,900 auto loans, borrowers with a lien or judgment recorded more than $61 million in charge-offs.
- In the auto lending space, at a 620 credit bureau score cutoff, knowing a customer has a lien or judgment increases a lender’s ability to identify likely defaulters by 36%.
“The changes made to credit reporting have clearly affected the lending and credit industry’s ability to accurately differentiate between consumers,” said Ankush Tewari, vice president, credit risk assessment, LexisNexis Risk Solutions. “Our study shows that consumers with a lien or judgment history factored into their profile pose substantially more risk than credit bureau scores estimate. Factoring in lien and judgment data that allows for a more comprehensive view better positions businesses to make more accurate risk decisions and lower charge-off rates while ensuring well-performing consumers and small businesses receive credit scores they need and deserve.”
To bridge the gap, the LexisNexis RiskView™ Liens & Judgments Report provides lien and civil judgment content for lenders to determine the count, type, dollar amount and other specific details of liens and judgments included in the report. RiskView employs identity linking technology through LexID®, ensuring businesses are linking the right person to the right record.
Download a copy of the report here.
Source: LexisNexis Press Release