BEYOND. THE CREDIT HEADER FILE How Your Business Can Use Unregulated Data to Boost Revenue, Increase Agility and Reduce Risk WHITEPAPER

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1 WHITEPAPER BEYOND THE CREDIT HEADER FILE How Your Business Can Use Unregulated Data to Boost Revenue, Increase Agility and Reduce Risk

2 BEYOND THE CREDIT HEADER FILE Table of Contents Executive Summary Introduction How Data Regulations Apply to You: A Brief History Lesson When (and When Not) to Use Regulated Data Four Ways Your Business Can Benefit from Unregulated Data Choose the Right Data for the Job Why Choose WhitePages Pro?

3 Executive Summary Companies use consumer data for a wide variety of purposes, but not all data is created equal. Consumer credit data is highly regulated and can create financial and operational overhead. Unregulated data is as good or better for many business activities and does not bring with it the risks and restrictions of regulated data. Key scenarios where unregulated data is a better choice include: Serving the underbanked population who lack detailed credit histories. Verifying consumer identities to reduce errors and fraud. Double-checking credit file data with a truly independent source of information. Increasing business agility by enabling business units to execute without time-consuming risk management procedures. Verifying or screening out mobile numbers. It is critical to select the right partner when using unregulated data because the value of the data is strongly dependent on how the vendor sources, cleans, and enhances it. 02

4 BEYOND THE CREDIT HEADER FILE data on consumers is essential to a wide variety of business processes, from fraud prevention to credit decisions to marketing. Many data providers compete to serve these needs, but not all data sets are created equal. One of the most important distinctions to make when evaluating consumer data is the degree to which it is regulated by the two most important pieces of legislation concerning consumer data and privacy: the Fair Credit Reporting Act (FCRA) of 1970 and Gramm-Leach-Bliley Act (GLB) of While FCRA primarily applies to credit reporting agencies and GLB primarily applies to financial institutions, both create requirements around the use and protection of data that have broader impacts on how companies operate. For the purposes of this paper, we refer to data that is subject to strong legal protections as regulated data, and data from public sources as unregulated data. Many businesses tend to use regulated files for everything especially those operating in industries where compliance is a major business concern, such as banking. However, even highly regulated companies can use unregulated data for many business functions to reduce cost, complexity, and risk. This can deliver greater return on investment associated with a given activity. There are also initiatives for which unregulated data is clearly the superior choice, such as offering products for the underbanked population and screening out mobile numbers from call center operations. In this paper, we discuss the differences between regulated and unregulated data and describe use cases in which unregulated data is a better choice

5 How Data Regulations Apply to You: A Brief History Lesson Prior to the passage of FCRA, consumer credit data was compiled by a wide variety of largely unregulated organizations that had little interest in protecting privacy or safeguarding personal information. There were few regulations around the types of data that could be collected, and no mechanisms in place for consumers to review their credit files, correct errors, or know the reasons for denial of credit. FCRA was created to address these issues. It standardized the credit reporting process and gave consumers the right to view and correct their data. Some key relevant FCRA provisions include the following: Creditors, insurers, and employers must notify consumers when adverse action is taken based on any FCRA product and tell them who provided the report. Consumer reporting agencies must give consumers access to their data when adverse action has been taken against the consumer and provide an annual copy of the data free of charge. Creditors must inform consumers that negative information will be placed in their credit reports for late payments or judgments. 04

6 BEYOND THE CREDIT HEADER FILE Further restrictions were placed on non-public data by the passage of GLB in GLB primarily applies to financial institutions, a category which it defines broadly to include real estate appraisers, collection agencies, tax return preparers, and other categories. Organizations subject to GLB are required to have measures in place that safeguard protected data, including risk analysis of departments that handle the data and consistent monitoring and testing of data protection measures. FCRA and GLB were instrumental in preventing abuses, increasing transparency, and empowering consumers. FCRA in particular also represents the birth of the modern consumer credit file, which is now a standardized offering across the major credit bureaus. However, the restrictive nature of the regulations governing non-public consumer data increase the risk, complexity, and cost of using it. For example, one company paid out a $5.9 million settlement in a class action lawsuit alleging that they failed to get employee consent before performing background checks and did not provide proper adverse action notifications. 1 1 School Transportation News, Court Approves $5.9 Million Settlement In Fair Credit Reporting Act Settlement Against FirstGroup. Link: 05

7 When (and When Not) to Use Regulated Data There are a few business activities in which regulated credit bureau data is the best or only choice. These include granting or denying credit, making employment or hiring decisions, or insurance underwriting. In these cases, consumers are required to be notified of adverse actions anyway, and the identity and credit information available subject to FCRA can be critically important. What Is Unregulated Data? Data gathered from public and proprietary sources Not specifically regulated by FCRA Can be used for a wide variety of purposes without incurring risk and regulatory overhead of credit files Unfortunately, the consumer data industry has been built on regulated files that rely on key fields typically social security number, date of birth, or driver s license number to positively identify an individual. Because of this, many companies use regulated data even when they don t need to because they believe this information is necessary for positive identification. This can create unnecessary financial and operational overhead. And in many cases, regulated data does not even provide good coverage of a target population, limiting its utility. In fact, for many purposes, high-quality unregulated data is equal or superior to regulated data. Unregulated data files are typically constructed from three main sources: publicly available information such as property tax records, information given voluntarily by consumers through online searches or subscriptions, and other proprietary sources such as warranty registrations or utility records. Because these files are sourced independently from credit bureaus and do not contain non-public personal information as defined by GLB, they offer unique advantages over traditional credit files. 06

8 BEYOND THE CREDIT HEADER FILE Unique Advantages of Unregulated Data 01 First, they do not require extensive and costly risk management processes. While protecting consumer information is always a good idea, data containing social security numbers and birthdates is subject to much more stringent protections compared to unregulated data, due to the increased risk associated with exposure of PII (Personally Identifiable Information). 02 Additionally, because unregulated data is sourced independently from credit bureaus, it often contains information that is simply not available otherwise. For example, unregulated data can be constructed to show relationships between individuals, whereas PII used as a key field in a credit data file is designed to identify only one individual at a time. Regulated data is often highly dependent on traditional landline phone numbers, which are being replaced by mobile phones at a fast pace. Unregulated data can provide significantly better mobile coverage in comparison. 03 Finally, according to a 2011 survey conducted by the Federal Deposit Insurance Corporation, More than one in four households (28.3 percent) are either unbanked or underbanked, conducting some or all of their financial transactions outside of the mainstream banking system. At the time of the survey, this represented 34 million individuals. These individuals are likely to have thin credit histories, making credit bureau files less useful for identifying and doing business with them. Unlike regulated files, unregulated data does not rely on credit reporting and can help positively identify even those individuals who lack a social security number or driver s license. 07

9 Four Ways Your Business Can Benefit from Unregulated Data Because of the differences previously mentioned, unregulated data can support a wide variety of scenarios that are difficult or impossible to execute using traditional credit files. Here are four ways that WhitePages PRO customers are using unregulated data to achieve key business goals. NO. 1: Serving the Underbanked Population As the financial industry has become more restricted and competitive, the underbanked market has received new attention, resulting in a plethora of products such as secured credit cards, prepaid debit cards, small-dollar loans, and so on. Dan Schulman, group president of Enterprise Growth at American Express, estimates that there are more than 2 billion people in the world, and 70 million in the US, that are poorly served by the traditional financial system, and American Express and other financial institutions are working to change that. 2 As with all financial products and services, the provider must manage risk effectively to be profitable and offer consumers reasonable pricing. With traditional products such as mortgages and credit cards, providers rely on credit scores and regulated data from credit bureaus to manage risk. For the underbanked, credit information is lacking or nonexistent, making it a waste of time and resources to use regulated data. Also, in many cases products for the underbanked are designed for those with slim credit histories, making credit history less relevant and reducing the need to take on the risk of using regulated data. Unregulated data allows financial institutions to instantly verify the identities of applicants even those who lack traditional forms of identifying information to protect against fraud and reduce errors without triggering the restrictive privacy, security, and reporting requirements of FCRA and GLB. 2 Banking Technology, American Express aims to serve unbanked and underbanked, 08

10 BEYOND THE CREDIT HEADER FILE NO. 2: Improving Brand Perception Because of FCRA, when a company makes an inquiry about a person s credit file, its name is recorded in that person s credit file across all the major credit bureaus. If the inquiry was being used to approve or deny credit, it is listed as a hard inquiry and the consumer must give prior consent. Consumers typically expect to see these hard inquiries when they apply for credit or have a background check performed on them. However, there are many reasons that a company might want to get information about a consumer that would generate a soft inquiry record in the individual s credit report. The company might be trying to find an address to send a collections letter, or they might be trying to verify someone s identity before they begin the process of making a credit decision. For some companies, showing up in consumers credit reports on a regular basis could be detrimental to their brand image. Debt collectors in particular can be subject to harassment lawsuits depending on state and federal laws. Unregulated data can enable organizations to perform many of the same functions for which they use regulated data but without showing up in consumers credit reports. Of course, if unregulated data is used to grant or deny credit or for other purposes covered by FCRA, the standard notification protocols would apply. But in many other cases, unregulated data is a valuable resource for companies to find consumer information without negatively impacting their brand. 09

11 NO. 3: Increasing Business Agility Many companies are so used to working with regulated data from credit bureaus that they treat all consumer data with the same heavy-handed approach to risk management, privacy, and security. Unfortunately, this adds layers of complexity that can stall or stop important business initiatives. A credit card department granting or denying credit needs to use regulated data. A marketing department wanting to identify additional members of a household does not. By having policies and procedures in place for enabling business groups to use unregulated data where possible, companies avoid the financial and operational overhead associated with non-public information and can move more quickly to take advantage of market opportunities. Unregulated data can also be used for identity verification at the beginning of a credit application process to eliminate costs associated with contact data that is incorrectly entered or scanned data, in a non-standard format, or just plain fraudulent. NO. 4: Broadening Data Coverage Many larger organizations already use FCRA-regulated data. In some cases they may want to verify the accuracy of one file by comparing it to another. However, since most credit files draw data from the same sources, using one credit header file to verify another may fail to catch many errors since they are typically drawn from the same source: consumer credit header files. In other words, they will tend to contain the same errors. Utilizing an unregulated data file as a truly independent source of identity data achieves the business objective of a true second check, and can provide additional data and insights such as greater coverage of mobile and non-fixed phone numbers such as those associated with Voice over Internet Protocol (VoIP). 10

12 BEYOND THE CREDIT HEADER FILE Choose the Right Data for the Job Regulated data is the right tool for a limited number of circumstances such as granting or denying credit, performing formal background checks, some debt collection procedures, and insurance underwriting. For virtually any other business process, organizations should consider unregulated data first. It enables them to move faster, reduce privacy and security risks, and eliminate regulatory cost and complexity. However, it is critical to choose the right data partner. The credit bureaus and data products based on their files are regulated and controlled by FCRA and draw their data from traditional credit sources. While the data may not be as rich or complete as many unregulated data products, at least it is sure to be in a consistent format across providers. With unregulated data, information can be drawn from many different sources that vary greatly in format. The vendor is responsible for cleaning, standardizing, correlating, and analyzing the data to make it usable. Vendors may also have proprietary sources of data that enrich their offerings. Additionally, unregulated data by definition does not contain key fields such as social security numbers that are unique personal identifiers, meaning vendors must use other data fields and linking technology to ensure positive identification. 11

13 Why Choose WhitePages PRO? WhitePages PRO is the leading provider of high-quality unregulated data and associated services in the U.S. and Canada. With a data organization approach we call the Contact Graph, names, phone numbers, and addresses are linked to form an intricate web of information. This unique structure allows us to update our data at unprecedented speeds, and ensures accuracy by double- or triple-verifying each data point. Our offerings combine data from public records, unique insights from tens of millions of interactions with our consumer products every month, and other proprietary sources into one of the most complete sources of consumer information available. With the best mobile coverage of any data vendor in North America, and numerous ways to access and use our data at enterprise scale, we have become a key data provider partner in the financial services and e-commerce industries, among others. To learn more about how unregulated data can benefit your business, contact us at. 12

14 Put WhitePages PRO to work for your business. Contact us to learn more.