The Value of Verified Employment Data for Consumer Lending: Evidence from Equifax
42 Pages Posted: 14 Apr 2020 Last revised: 20 Jul 2021
Date Written: March 18, 2020
What is the value of verified employment data in consumer lending? We study this question using a data set covering all employment verification inquiries to Equifax. Using a difference-in-differences approach, we analyze the changes in applicants' loan outcomes after their employers join Equifax's digital verification system, which provides lenders with an efficient way of accessing the (employer-) verified employment data in auto loan applications. Holding the employment status constant, we find that the availability of digitally verified data significantly expands credit access: the loan origination rate increases by 35.5% on average, and is more significant among deep subprime (146%) and subprime consumers (44%). The interest rates charged on these loans rise only slightly. The expanded credit access also benefits lenders, with an estimated 19.6% increase in profit. This is because the benefit of the market expansion effect dominates the cost of a higher delinquency risk among the expanded loan portfolio. Our results suggest that, besides seeking new data sources, managers and policymakers should also consider ways to extract more value from existing data. The economic benefit of doing so can be sizable without additional privacy concerns perceived by the consumers.
Keywords: Inclusive Access to Credit; Digitization; Verification Cost; Information Asymmetry
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