Major Break Through Using Non-FCRA Data In Direct MailMajor break through using non-FCRA data in Direct Mail
FCRA vs. Non-FCRA Regulated Data and Why?
MaxDecisions, Inc. has worked with true lenders in consumer lending industry to develop non-FCRA (Fair Credit Report Act) direct mail response models. The reason for using non-FCRA regulated data comes in two folds. First, from a data cost perspective, it is generally less expensive than regulated FCRA data. Second, which is the most important aspects of why true lenders would like to use non-FCRA regulated data is for compliance reasons.
You must comply!
There are a few items to point out on FCRA regulated data. One of the most important aspect of using FCRA data for direct mail is that you must make a credit offer to the consumer as soon as you’ve pulled their credit report offline. It is the law. When a customer responds to your direct mail offer based on FCRA regulated data (consumer credit report), you must extend credit to that consumer. There are a few exceptions, fraud, income, employment (or the consumer rejected you due to various reasons, pricing, term etc.). However these exceptions must be clearly stated on the direct mail offer. The lenders must be very careful when declining or rejecting a customer that responded to an offer based on FCRA data. We advise our lenders to have at least 60%+ conversion rate, that is the rate from responders to converted loans.
Secondly, most of our lenders offer a wide range of pricing when it comes to finance products. By the same interpretation of the FCRA, you must give out loans in all ranges available on tour mailing offer. For example, if you mailer states that you offer a “4.99% APR to 36% APR” consumer lending product, some of your loans must have a 4.99% APR loan. It has to be large enough of a sample, it can’t just be one or two loans out of thousands.
The benefits of using non-FCRA regulated data
The aforementioned reasons are just a few that puts a lot of pressure on lenders and some of our clients. Some of MaxDecisions, Inc. clients have turned to non-FCRA regulated data completely to avoid the potential of violating federal consumer lending laws and some choice to balance their direct mail strategy with half of the budget spent on FCRA and the rest with non-FCRA data. In case there are perceived compliance issues with their direct mail efforts with FCRA data, they can quickly switch over to non-FCRA regulated data.
MaxDecisions, Inc. has helped our customers to alleviate potential regulatory and compliance issues by switching or balance our lenders from 100% FCRA to a combination of FCRA and non-FCRA regulated data with their direct mail efforts.
There are multiple challenges facing our clients. In the case of true lenders, FCRA or Fair Credit Reporting Act is a federal consumer financing law that lenders must follow in terms of firm offer of credit and maintaining a high conversion rate. Some of these compliance risk are difficult to manage and our clients are looking for alternative solutions such as generation direct mail leads from non-FCRA regulated data.
- FCRA or Fair Credit Report Act compliance:
When a consumer’s credit report is used in determining eligibility for a loan or credit product, lenders must offer that consumer a loan or credit if that consumer responds to the marketing piece. Sometimes the consumer’s credit and income situation has changes and no longer fits the lender’s criteria. If most of the responders falls out of the lender’s criteria, the lender might end up with a low conversion rate which might be looked upon as deceptive and therefore could be in violation of the Fair Credit Reporting Act.
- For Non-Lenders:
Some of our lenders are lead generators, debit settlement or law firms that does not have permissible purpose to look at consumer reports. They sometimes purchase FCRA related data through third party furnishers which is not compliant. A solution could be non-FCRA data. Credit bureau often would not allow non-lenders to access FCRA regulated data, however these entities can easily work with non-regulated data and the results are similar if given enough analytical treatment.
In most scenarios, non-FCRA or non-regulated data cost less than FCRA data. Especially for lenders or non-lenders to test a non-FCRA campaign, the capital outlay is less intense than running a FCRA compliant Direct Mail campaign. This might be a good substitute for FCRA Direct Mail campaigns both on cost and compliance related issue.
MaxDecisions, Inc. helped our clients to launch their first non-FCRA campaign with aggregated credit data.
- Non-FCRA data is powerful:
Aggregated data is generally aggregated at a 7-household level. Meaning that the credit information averaged across 7 family next to you. Most of the non-FCRA data sources also offer an aggregated FICO score and income estimator. All of which are aggregated or summarized over a cluster of families living in the same street or area.
- Non-FCRA data is flexible:
With non-FCRA regulated data, marketers and lenders can be a bit more flexible with their selection criteria. They can generally cast a wider net to attract a bigger audience. When the responders come and ask for an product, lenders and non-lenders can pass these responders through their underwriting or send these customers to an affiliate company that is more fitting to the customer’s needs.
- Non-FCRA regulated data is less expensive:
Generally speaking, the non-regulated data is less expensive that FCRA or Fair Credit Reporting Act regulated credit data. This allows lenders and on-lenders to deploy more marketing pieces to more audience with the same marketing budget.
MaxDecisions, Inc. helped our clients to launch their first non-FCRA campaign with aggregated credit data. The response rate was close to 100 bps, similar to their FCRA firm offer of credit Direct Mail campaigns:
- Similar response rate as FCRA:
The Direct Mail campaign executed under non-FCRA data performed similarly to FCRA data in terms of response rate.
- Low data cost resulted in lower Cost Per Funded Loan:
With similar response rate, the cost per funded loan decreased as well with respect to the client’s FCRA driven direct mail campaign.
- Less compliance issue:
With non-FCRA data, lender are not obligated to issue credit or a loan if the customer doesn’t pass the lender’s underwriting criteria. It is what is called an invitation to apply. For non-lenders, they can offer products and redirect these responders to their lending partners that fits this customer’s credit profile.