Answer:
Regulation B contains a very careful and precise definition of a "demonstrably and statistically sound, empirically derived credit scoring system" (hereinafter referred to as DSSEDCSS) and does so for one purpose only: the ability of the system to consider the applicant's age. If the scoring system or underwriting system does not consider the applicant's age, the Reg B definition doesn't matter and the system wouldn't have to meet the demonstrably and statistically sound test.
Under the Regulation B decision-making rules, there are only two types of systems: DSSEDCSS or judgmental systems. It is legal and permissible under Regulation B to have a system that scores or automates credit decisions that does not meet the DSSEDCSS test. However, if the system does not meet the test, it is considered judgmental and may not score age in the system. Most of the desktop underwriting systems such as FNMA's don't consider applicant age and are therefore OK.
Caveat: The new FACT Act has a different definition of credit scoring for a different purpose. Stay tuned for rules on that and be careful not to confuse FACT Act rules with Reg B rules.
First published on BankersOnline.com 06/21/04
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