NR 97-46
May 20, 1997

         OCC Alerts Banks to Potential Benefits and Risks
                     Of Credit Scoring Models


WASHINGTON, D.C. -- The Office of the Comptroller of the Currency
(OCC) today notified its national banks and examiners to potential
concerns with the use of credit scoring models by some national
banks.  The OCC said that although credit scoring models could
help bankers make sound credit decisions, the agency has
identified practices that could affect a bank's safety and
soundness and its compliance with fair lending laws.

Credit scoring models are computer models used by lenders to
evaluate potential borrowers and to underwrite all forms of retail
credit, including credit cards, installment loans, residential
mortgages, home equity loans and small business credit.

"Like all tools, credit scoring models can be used well or badly,"
said Comptroller of the Currency Eugene A. Ludwig.  "Because they
are so powerful, their potential for good -- or ill -- is
magnified.  That means they must be developed, implemented,
tested, and maintained with extreme care."

In a bulletin sent to all OCC examiners and national banks, the
OCC said credit scoring models can help bankers control risk,
manage credit losses, help evaluate new loan programs, shorten
processing time for loan applications, and improve bank
profitability.   When used appropriately, the OCC also said credit
scoring models can ensure that a bank's existing credit criteria
are sound and consistently applied and can improve bank compliance
with fair lending laws.

To ensure that these models are used properly, the OCC said it was
issuing today's bulletin to alert banks to potential concerns,
including the application of credit scoring models to products and
customers for which they were not designed and inconsistent use of
credit scoring models, including excessive overrides, which can
undermine the integrity of a credit scoring model.  

To assure safety and soundness in the use of credit scoring
models, the bulletin advises banks to carefully evaluate new
models that they develop as well as those purchased from vendors. 
Banks must then validate their models periodically, including
comparing actual performance with expected performance.  The bank
must also assure that its information systems are adequate to
handle and test the models and produce useful reports for
management decisions.

Focusing on fair lending issues, the OCC cited the potential for
credit scoring models to include characteristics that may be
discriminatory, have a disparate impact on a prohibited basis, or
raise other Equal Credit Opportunity Act or Fair Housing Act
concerns.  The bulletin advises national banks to avoid illegal
disparate treatment by ensuring that adequate controls exist
during the pre-scoring, scoring, and post-scoring stages of the
credit application process.  

Banks, the bulletin says, should establish clear guidelines for:

-    Providing similar assistance to all credit applicants.
-    Overriding a credit score, including who may do so and under
     what circumstances.
-    Training, monitoring, and supervising bank employees who use
     credit scoring models.

A copy of the Credit Scoring Models Bulletin (OCC 97-24) May be
obtained by writing to Comptroller of the Currency, Public
Information Room (Mail Stop 1-5), Washington, DC 20219; faxing a
request to (202) 874-4448; retrieving the document from the OCC's
web page at http://www.occ.treas.gov; ordering by phone (202) 874-5043; or visiting the OCC's Public Information Room at 250 E
Street, S.W. in Washington, D.C. (9 a.m. - noon and 1-3 p.m.,
Monday - Friday).

                               # # #
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The OCC charters, regulates and supervises approximately 2,800 national banks
and 66 federal branches and agencies of foreign banks in the U.S., accounting
for more than half the nation's banking assets.  Its mission is to ensure a
safe, sound and competitive national banking system that supports the citizens,
communities and economy of the United States.