Developing a Free Credit Score Program kpmg.com
Developing a Free Credit Score Program 1 Introduction U.S. regulators, including the Consumer Financial Protection Bureau (CFPB), have begun urging lenders to provide free credit scores to consumers as a best practice to increase consumer understanding of their credit standing. Several organizations have recently rolled out free credit scores, and each has experienced its own challenges in achieving a successful outcome. Given the lack of procedural guidance by regulators, the inexperience across the industry with free credit score programs, and the impact a free credit score may have on all stakeholders, the success of these programs has been hit or miss. For example, some organizations have been ill-equipped to deal with the overwhelming volume of inbound calls when consumers receive their free credit scores for the first time. Customer service representatives may not have been adequately trained to address the countless types of sensitive questions consumers ask regarding their credit scores. These issues have unfortunately diminished the intended benefits of providing free credit scores for both the consumer and the organization. Organizations are beginning to understand that they need to take a more proactive and thoughtful approach when rolling out these types of programs. A holistic approach to risk assessment should consider potential reputational, legal, and operational risk exposure. The importance of effective preparation cannot be overlooked, and in order to have a successful outcome, organizations must navigate through the complex and comprehensive planning and implementation process. The following framework has been designed to help with this effort: Free Credit Score Development Framework 1 Plan 2 Design Implement Monitor 3 4 Identify Stakeholders Define Strategy Define Purpose Credit Score Model Selection Risk Management and Regulatory Compliance Credit Score Program Design and Communication Customer Service and Issue Resolution Consumer Financial Education Design Technology Solutions and Integration Business Change Management Technology Change Management Transition to Steady State Ongoing Maintenance and Regulatory Updates Continuous Improvement Data Analytics
Developing a Free Credit Score Program 2 1 Plan Identify Stakeholders Define Strategy Define Purpose Organizations have different motivations for wanting to implement a free credit score. These motivations help define the strategic vision and purpose of an organization s free credit score program and are instrumental in providing direction for the program s design and implementation. For example, an organization whose primary motivation for providing consumers free credit scores is to increase company profits through additional marketing initiatives will have a very different strategy and program design than an organization whose main concern is mitigating regulatory risk. Business Drivers for Implementing a Free Credit Score Program: Regulatory Compliance. Some organizations anticipate that regulators will eventually mandate that lenders provide free credit scores to consumers, and these organizations wish to get ahead of this potential regulatory requirement. By rolling out a program at their own discretion, organizations may pacify regulators, including the CFPB, and possibly help shape any future requirements. Increase Shareholder Value. Certain organizations are strongly motivated to implement a free credit score program to increase shareholder value by providing sales opportunities to market and cross-sell additional products to new and existing consumers. Additionally, educating consumers about their credit will allow them to use this knowledge to make better credit decisions, which can in turn reduce the organization s risk exposure by decreasing late payments and loan defaults. Increase Consumer Goodwill. Other organizations feel that it is their responsibility to empower consumers to make well-informed financial decisions. This can be accomplished by providing transparent, easy-toaccess information on how lenders make credit decisions and how lenders perceive personal credit worthiness. By providing free access to credit scores along with supplementary financial education materials, lenders hope to build trust and increase consumer loyalty.
Developing a Free Credit Score Program 3 2 Design Customer Service and Issue Resolution Risk Management and Regulatory Compliance Credit Score Model Selection Credit Score Program Design and Communication Consumer Financial Education Design Technology Solutions and Integration An organization must carefully design the free credit score program to align with its strategy as outlined above, taking into account the various functional areas and stakeholders within the organization that will be affected. Customer Service and Issue Resolution. Arguably the most sensitive area of high risk in the design phase, customer service and issue resolution must be carefully considered based on an organization s strategy and current and future capabilities. It should be assumed that there will be a high degree of outreach by consumers after receiving their free credit scores for the first time. Consumers will likely question whether their credit score will be adversely affected by the lender pulling their information and why the credit score they received may be different from a credit score they ran themselves or was provided to them by a different vendor. Given consumers general lack of understanding of credit scores and sensitivity around use of personal information, the sheer volume of questions consumers may pose could overwhelm even the best-run customer support departments. Some activities organizations can consider to manage consumer outreach include: Developing use cases to anticipate the types of questions consumers may ask. Publishing frequently asked questions (FAQs) along with the free credit scores. Routing free credit score inquiries to a specialized group. Liaising with a credit reporting agency, or other third party, to handle questions. It is essential that an organization determine the level of involvement it is willing and capable of handling and how much additional training and cost it wishes to invest in customer support staff. Risk Management and Regulatory Compliance. Providing consumers with their credit scores could have material risk and regulatory implications for an organization, and it is incumbent on a lender to fully assess and monitor its risk exposure at an organizational and functional level. Lenders must understand the current credit reporting and consumer protection requirements and ensure that their practices are compliant with rules set forth by any one of the following regulatory requirements: Fair Credit Reporting Act (FCRA) Fair and Accurate Credit Transactions Act (FACTA) Consumer Data Industry Association (CDIA) Consumer Finance Protection Bureau (CFPB)
Developing a Free Credit Score Program 4 Credit Score Model Selection. While at first glance it may seem that each of the following free credit score models are nearly the same, there are significant differences that an organization must consider when selecting the most appropriate option. The FICO Score Open Access program provides consumers with the exact FICO score that is used by the lender in its risk assessment. Alternatively, each credit reporting agency Experian, Equifax, and Transunion has an alternative educational scoring model that mimics the FICO score calculation and can be used for marketing purposes. Each credit reporting agency can also provide the Vantage score, which may be a suitable option for an organization that uses the Vantage score for their credit decisions. Credit Score Program Design and Communications. The free credit score program must be designed with the organization s strategic vision and purpose in mind. Lenders who are providing free credit scores primarily to increase consumer goodwill may take a more comprehensive approach than an organization that seeks to minimally meet regulatory requirements. Additionally, lenders who are utilizing the free credit score program for marketing and cross-sell purposes may design the program to integrate with their sales functions. Some key considerations to be made during the design and communication phase include: Scope. Who will be receiving the free credit scores? Will the scores be distributed to existing consumers only, or extended to include new, target consumers? Delivery. What mediums does the organization want to use to distribute the free credit scores to consumers? For example, free credit scores can be provided online, on mobile devices, and on monthly statements. How prominently should the free credit scores be displayed on the various mediums? Frequency. How often will consumers be provided their free credit scores? Free credit scores can be provided every month, although an organization may wish to deliver free credit scores to consumers on a less frequent basis. Communications. What type of marketing, communication, and disclosure materials will be provided to consumers? Consumer Financial Education Design. A free credit score program is best supplemented with a thoughtful financial education campaign that provides information on credit scores, meaningful steps consumers can take to improve their credit scores, and how to responsibly manage credit. The scope of the education campaign will also depend on the organization s strategy, capabilities, and desired level of involvement. Each free credit score model provider also has off-the-shelf education materials that an organization may want to use in its entirety or as part of their larger education campaign.
Developing a Free Credit Score Program 5 Technology Solutions and Integration. An organization s technology infrastructure may need to be modified to support the new offering. This can include integrating the free credit score on mobile apps and monthly statements and providing online access. An organization should work closely with its technology and risk management groups to ensure the data security of consumers credit and personal identifiable information. 3 Implement Business Change Management Technology Change Management During the implementation phase, an organization must plan and execute the free credit report program with the consumer foremost in mind and be conscious of the visibility of the program and reputational risks. Depending on the size of the organization, it may be advisable to implement the program using a phased rollout rather than all at once. By taking this incremental approach, the implementation period will be extended; however, an organization can better gauge customer response, handle any potential issues it might experience, and make corrective actions as necessary. Tactical Plan. The organization should have a tactical rollout plan that identifies key activities and stakeholders that will be involved in the plan s execution. The plan should be monitored daily to ensure each action is executed as expected. Any missed activities should be reported to the project sponsor or escalated for resolution. Finally, the plan should include a fail-safe or back up if the rollout is not occurring as intended. Testing. As part of the implementation phase, extensive testing should be conducted on all aspects of the program including validating the accuracy of credit scores and related information, the availability and clarity of related FAQs, customer service knowledge and scripts, and any technology related functionality. Quality Control. Throughout the rollout, the implementation team should conduct on-going quality control for activities that may create risk to the organization downstream. Monitoring customer calls, reviewing credit scores on a sample of accounts and reinforcing customer service training are a few activities that should be considered.
Developing a Free Credit Score Program 6 4 Monitor Transition to Steady State Ongoing Maintenance and Regulatory Updates Continuous Improvement Data Analytics Given the evolving nature of the consumer lending environment and associated regulations, a free credit score program must be maintained and continually improved upon after reaching steady state. Furthermore, organizations should seek feedback from consumers and internal stakeholders to make necessary enhancements to the program. Key metrics, such as the consumer credit score trends, loan defaults, new sales, etc., should be monitored and tracked in order to evaluate whether the program is successful based on the program s defined strategic goals. Additionally, organizations should use data analytics to create value by identifying trends, creating opportunities, and increasing the ROI of the free credit score program. Program Management. Once the program has been rolled out, organizations should continue to monitor and report program activities for a period of time. Organizations can update FAQ sheets based on customer inquiries and customer service experiences. Staff levels may be adjusted to coincide with call volumes. Information provided with the free credit score may be augmented or edited. Dashboard and Key Metrics. Organizations have found that an integral part of a successful program is the development of key metrics that support the program s purpose and design. For example, if the original intent was to increase cross-sell opportunities than metrics should be developed to demonstrate and measure that impact. Summary Despite the tremendous impact credit scores have on consumers overall financial health, most individuals are unaware of their credit standing and how lenders use credit scores in their decisions to determine eligibility and optimal terms. This financial education gap negatively affects both sides of the credit equation: consumers whose financial well-being is directly tied to their credit profile, and lenders, who must assume the additional risk of borrowers who have a poor understanding of how to manage their personal credit. While providing free credit scores to consumers is becoming an industry best practice, there are many risks and considerations a lender must evaluate when making the decision of whether or not to implement a free credit score offering, and when designing and planning the rollout of the program. Given the high visibility of the free credit score program and the number of areas within the organization that will be affected this process can be challenging for many financial institutions to navigate on their own. KPMG can help.
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