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Credit Where None Is Due? Authorized-User Account Status and Piggybacking Credit

Authors

  • KENNETH P. BREVOORT,

  • ROBERT B. AVERY,

  • GLENN B. CANNER


  • Kenneth P. Brevoort (kenneth.brevoort@cfpb.gov) is a section chief at Consumer Financial Protection Bureau. Robert B. Avery (robert.avery@fhfa.gov) is a program manager at Federal Housing Finance Agency. Glenn B. Canner (gcanner@frb.gov) is a senior adviser at Federal Reserve Board. We thank Ezra Becker, Ron Borzekowski, Leonard Chanin, Jane Gell, Catherine Henderson, Robin Prager, David Stein, and Chet Wiermanski for helpful comments, Cheryl Cooper for research assistance, and Rick McKinney for helping assemble a history of Regulation B. Any remaining errors are our own. The analysis in this article was completed when all three authors were employed at the Federal Reserve Board. Ken Brevoort also thanks the Credit Research Centre and Business School at the University of Edinburgh for their hospitality while working on this article.

Abstract

“Piggybacking credit” is a new practice that helps consumers improve their credit scores by paying to become “authorized users” on established accounts. Authorized users are not liable for paying an account, but because of Regulation B (which implements the 1974 Equal Credit Opportunity Act), the account's history factors into their credit scores. As a result piggybacking can be used to manipulate the signal of creditworthiness that scores provide and may help borrowers obtain credit for which they would not have otherwise qualified. This article investigates the policy questions raised by piggybacking. First, we evaluate whether the credit history disparities that motivated these provisions of Regulation B have persisted since they were written. Then, we assess the potential for score improvement through piggybacking. Finally, we evaluate the likely score effects of allowing credit scoring models to exclude authorized-user accounts, the most widely proposed policy response to the emergence of piggybacking.

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