1. Alternative Data and Buy-Here, Pay-Here
by Scott Brackin
Transportation is a key factor in upward mobility in the U.S. In
many parts of the country, it is nearly impossible to work
without a vehicle. However, in order to buy a vehicle, one
must have credit.
For the owner and operator of a buy-here, pay-here store
(BHPH), the operator is in the unique position of not only
building a financial bridge upward, but to shape the way the
industry and regulators view this segment. The buy-here, pay-
here operator is not only the dealer, but the finance company
as well. Being in this position comes with additional
responsibilities and a vast array of challenges. Recently, the
FTC penalized a Texas BHPH operation regarding credit
reporting. The FTC's complaint alleges that Tricolor Auto
Acceptance (TAA), violated the Furnisher Rule, which was
implemented under the Fair Credit Reporting Act. The rule
requires companies that report information about consumers
to consumer reporting agencies (CRAs) to maintain policies and procedures designed to ensure
that the information they report to CRAs is accurate and to allow consumers to dispute
information they believe is inaccurate directly with the company that furnished the information.
BHPH, Credit and Regulators
Unlike the large automotive finance companies, the lack of
sophistication in the deployment of "traditional" credit
information can lead an operator who is more focused on
selling cars and less on being a finance company right into the
courtroom versus "working" the showroom. Now add in the
notion of the "credit invisible," and an operator can easily be
derailed into a sea of compliance issues that can drown the
typical operator. The reality is the BHPH operator has the
greatest opportunity to service those deemed "invisible."
There are 26 million Americans (11 percent of U.S. adults)
who are "credit invisible," or who do not have a credit file
with any of the traditional credit reporting agencies (CRAs) -
Equifax, Experian and Trans Union. Additionally, 8 percent of
U.S. consumers have "unscored credit records, which means
they have insufficient credit history to generate a credit
score. CRAs use tradeline data to score consumers. This data
includes information about the account, the type of account and payment information. It is
essential for accurately evaluating and predicting a consumer's future behavior, but it does not

2. capture a holistic view of a consumer's overall financial standing. And although traditional CRAs
use alternative data for scoring, this data only includes public records information, such as court
records from bankruptcies and liens or judgments.
The majority of underbanked consumers, the "credit
invisible," are not adequately scored through traditional
CRAs. The missing link for traditional CRAs is that they don't
have pertinent information from alternative lenders, which
many underbanked consumers use for access to loans
because they don't have a mortgage or credit card. Many of
these alternative lenders report data only to alternative CRAs.
Without data from alternative CRAs, a BHPH operator will
miss out on the opportunity to better serve a consumer that
already does business with them!
A BHPH dealer who integrates credit tradeline data from
alternative lenders can offer consumers more flexibly-priced
loans, while at the same time mitigate losses. Alternative
credit tradeline data helps dealers capture the highest-risk
consumers in lower score bands, while promoting the lowest-
risk consumers into higher score bands. This allows BHPH
operators who work with consumers who would have identical profiles within the CRAs to be
assessed for risk more accurately and access to a more suitable automobile.
Necessity is the Mother of Invention for a BHPH Operator
Many of the consumers a BHPH operator serves today have the potential to become a more loyal
repeat customer for the operator. The operator who learns to incorporate a better view of who
that consumer is will gain an advantage in developing a better relationship, more effectively
negotiate with "would-be" buyers of their paper and increase its production of a compliant
lending environment necessitated by the regulators.
Alternative credit data, provided by companies like FactorTrust, not only provides BHPH
operators with a more holistic view of borrowers, but it is also an essential factor in ensuring
consumers who are below or at the prime level gain upward mobility, improving their credit and
overall economic status.

3. Scott Brackin is the automotive practice segment leader for FactorTrust. Scott
has more than 24 years of experience in financial services, credit risk data, and
technology. Since joining FactorTrust in 2013, he's overseen the company's
rapid growth in the automotive segment as part of his vision to become the
premier alternative credit reporting agency (CRA) and analytics business for the
automotive finance industry.