PERC Releases Study on Credit Deserts in Silicon Valley

DURHAM, N.C., Nov. 3, 2017 /PRNewswire/ -- PERC released a study showing large swaths of San Mateo and Santa Clara Counties (Silicon Valley) with high concentrations of Credit Invisibles (people with no credit report or score), and alternative financial services providers (AFSPs include payday lenders, pawn shops, and title lenders). These areas—called "Credit Deserts"—are also under-served by affordable mainstream lenders, and often have below average credit scores and household incomes.

"It is telling that in the heart of Silicon Valley—an area that has prospered greatly as a result of IT—data gaps are forcing many residents to have their real credit needs met by high cost lenders," said Michael Turner of PERC.

While identifying a substantial social and economic problem, the PERC report depicts the impact of a potential solution—the inclusion of alternative data (telecoms, rent, utility payments)—in consumer reports to be used in the loan origination process.

Ankush Tewari of LexisNexis Risk Solutions, said: "Credit invisibility, thus financial exclusion, continues to be a national problem. Alternative data plays a significant role in increasing the scoreable population. Introducing a score into the market for a consumer that is not traditionally scoreable allows that consumer to borrow at a fair, mainstream market rate."

Given the high relative fixed costs and losses associated with this lending segment, increasing low-cost credit access for those with genuine credit needs would seem to rest on improving mainstream lender's ability to accurately assess credit risk for this segment and lower the costs of risk assessment.

"Many consumers are invisible to traditional lenders, and unable to get approved for mainstream financing options," said Steve Wagner of Experian. "We've found that that by adding on-time rental payments and other alternative financial services data, we are able to provide a broader view of these consumers and can help them get the financial services they need."

Perhaps the most compelling finding from this analysis is the dramatic impact from credit reporting even very modest amounts of alternative data and the use of alternative scores on the lending landscape across Silicon Valley.

By using alternative data, the share of consumers with credit scores needed for mainstream increases, credit invisibility is nearly stamped out, and Credit Deserts vanish (Figures 1 & 2).

"Thanks to PERC, we have known for more than a decade that the lack of credit scores is harmful. Credit invisibility disproportionately affects young people, African-Americans, Latinos and immigrants, and low-income individuals.  But, by encouraging the reporting of proven payment data, we can give people the benefit of having the bills they already pay help them establish a credit score without debt." said Congressman Keith Ellison (D-MN).

You can download the report on PERC's website here:
http://www.perc.net/wp-content/uploads/2017/11/Credit_Desert.pdf

Founded in 2012, The Policy and Economic Research Council (PERC) is an IRS designated 501c3 nonprofit organization headquartered in Durham, NC. PERC's mission is to increase financial inclusion through the use of innovative information solutions.

Media contact:
Patrick Walker
919-338-2798 x804
[email protected]

SOURCE The Policy and Economic Research Council