Loan Denials using Proprietary Score Models vs FICO Scores - Reg B Concerns?

Loan Denials using Proprietary Score Models vs FICO Scores - Reg B Concerns?

This is the second post in our "Understanding Fair Lending" series based on a recent fair lending webinar with Jerry Miller. The first article (Fair Lending and Regulation B) is available and 8 more are coming. You can download the full webinar here

fico credit scores loan denials fair lendingIn the beginning of June, we held a free webinar on the many Fair Lending regulation challenges impacting financial institutions, and it proved to be a topic concerning many compliance professionals. With over 250 guests in attendance, several great questions were posed during the 30-min Q&A session and this was one of the most challenging ones. The participant asks if internal scoring models need to be treated the same way FICO scores are when denying a loan. 

Jerry Miller, our fair lending veteran, explains how proprietary scoring models are not generally viewed in the same manner as FICO scores when it comes to adverse action notices for regulation B. Specifically, Mr. Miller points out that when an institution assigns certain points for residency, employment, relationship with the institution, etc... those are internal scores and are not frequently disclosed. 

In the video below you can hear Mr. Miller answering the questions. Just keep in mind that scoring models heavily influenced by ethnicity or gender, for example, could pose implications with examiners.

Watch The Video Highlight:

Many more Fair Lending resources

Of course, this is just a small piece of the 60-min session that took place on 6/4/14. Here are a few more options to supplement your fair lending training:

What do you think? Are there additional fair-lending questions you’d like addressed? Include them in the comments section below or email us at You can also find more Sheshunoff™ training and materials at the LexisNexis® Store.

Read the full Q&A Transcript

MODERATOR: You mentioned a potential problem includes denials with FICO scores if we used it to decline the loan. Is that applicable to both FICO scores as well as proprietary score models?

Mr. MILLER: Proprietary score models are not necessarily viewed in the same manner. When I say proprietary, you need to be careful here because a score card used within an organization that says I'm going to give so many points for residency, I'm going to give so many points for retirement job, so many points for relationship with this institution or prior institutions. Those are not disclosed. Those are internal scoring proprietary systems. FICO scores are generally the ones that are viewed in terms of a Reg B violation for having disclosed properly with adverse action notices and providing a low score.

Now, I always use terms like "generally that's what it refers to" instead of the term "always," because the minute I ever use the word "never" and "always," I have to find out somewhere down the road two years from now or two weeks from now there could be an exception, but generally that particular criticism under Reg B for not providing credit scores refers to the FICO scores that come from the credit bureau.