Editor's note: The original version of this story misstated the name of FICO Score XD. This story is now corrected.
LAS VEGAS -- Auto lenders are employing so-called alternative data and, potentially, artificial intelligence for many purposes, according to panelists at the American Financial Services Association's annual Vehicle Finance Conference here last week.
A key use is approving and disapproving loan applications, which is likely to create friction with dealers, especially as artificial intelligence catches on. When bigger, wider sets of data affect the decision on top of traditional measures, most notably credit history, it can become impossible for a lender to explain precisely why an individual loan got turned down.
F&I managers may see, for example, customers whose credit scores look acceptable be rejected for loans as a result of considerations derived from alternative data.
"Would you be comfortable if you don't know how you got there? Are you comfortable with using that?" said Scott Cooke, chief risk officer at Toyota Financial Services. "These AI systems are not going to give you the direct path, the coding, to get to that."
There were separate sessions at the AFSA conference for alternative data, which is already in widespread use, and for artificial intelligence, which draws on, and some have referred to as, Big Data. AI is still on the drawing board for auto lenders. In both sessions, panelists set out to define the terms.