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Even if all credit data regarding consumers held at credit repositories were accurate, complete, and current, there would be significant concerns about the fairness of automated credit scoring programs. Converting the complex and often conflicting information contained in credit reports into a numerical shorthand is a complex process, and requires a significant number of interpretive decisions to be made at the design level. From determining the relative influence of various credit-related behaviors, to the process used to evaluate inconsistent information, there is a great potential for variance among scoring system designs | Report to Congress Credit Rating Standardization Study As Required by Section 939 h of the Dodd-Frank Wall Street Reform and Consumer Protection Act September 2012 This is a report of the staff of the U.S. Securities and Exchange Commission. The Commission has expressed no view regarding the analysis findings or conclusions contained in this report. I. Executive Summary The Dodd-Frank Wall Street Reform and Consumer Protection Act Dodd-Frank Act 1 was enacted on July 21 2010. Title IX Subtitle C of the Dodd-Frank Act consisting of sections 931 through 939H and titled Improvements to the Regulation of Credit Rating Agencies amended the Securities Exchange Act of 1934 Exchange Act to impose new self-executing requirements with respect to credit rating agencies registered with the U.S. Securities and Exchange Commission Commission as nationally recognized statistical rating organizations NRSROs requires that the Commission adopt rules applicable to NRSROs in a number of areas and requires the Commission to conduct certain studies.2 Section 939 h 1 of the Dodd-Frank Act provides that the Commission shall undertake a study on the feasibility and desirability of standardizing credit rating terminology so that all credit rating agencies issue credit ratings using identical terms standardizing the market stress conditions under which ratings are evaluated requiring a quantitative correspondence between credit ratings and a range of default probabilities and loss expectations under standardized conditions of economic stress and standardizing credit rating terminology across asset classes so that named ratings correspond to a standard range of default probabilities and expected losses independent of asset class and issuing entity.3 1 Pub. L. 111-203 124 Stat. 1376 H.R. 4173. 2 See Pub. L. 111-203 931-939H. 3 See Pub. L. 111-203 939 h 1 . Section 938 a of the Dodd-Frank Act provides among other things that the Commission shall require by rule each NRSRO to establish maintain
