You may have to give more personal data for loan

Would you feel comfortable disclosing your bank account information on a personal loan application? What about your work history? Your college major?

That’s what it could take to borrow money from some loan companies that consider alternative data — which can be anything that isn’t in your credit report — when deciding whether to approve your loan application.

But some consumer advocates say that while certain types of alternative data can be promising for consumers, others have the potential to reinforce existing racial and economic disparities and limit access to money for low- and middle-income people.

Does it help or hurt?

With the consumer’s approval, using bank account information like credits and debits — which can show responsible financial behavior — on a loan application can be positive for those historically underserved by the credit system, says Chi Chi Wu, an attorney with the National Consumer Law Center, a consumer advocacy group.

But incorporating educational and occupational data in a loan application “replicates existing inequality and it reinforces it,” she says.

Lenders need consent

An increase in the intrusive nature of the data lenders consider in application decisions should be met with more transparency to the consumer about what’s being used, says Brent Adams, senior vice president of policy and communication for the Chicago-based financial research and advocacy nonprofit Woodstock Institute.

“There’s another piece of this which (is) — it’s inevitable,” Adams says.