Detecting earlier signs of financial strain among cleared professionals can bolster insider threat programs during times of economic uncertainty
Introduction
A recent TransUnion analysis of federal student loans found 20% of borrowers not in deferment or forbearance – around 4 million people – are currently 90+ days past due, and another 31% are likely to hit that delinquency milestone in the coming months. For most delinquent borrowers, the impact of nonpayment is limited to a strong negative shift in their credit score and corresponding curtailment of opportunities to access new credit.
But for those who occupy positions of public trust, this nonpayment could also result in the revocation of their security clearance and potentially leave employers with urgent staffing needs that are difficult to fill given the cumbersome nature of clearance investigations. This scenario demonstrates the importance of continuous evaluation programs that can identify early signs of financial distress, giving employers the opportunity to remediate the situation before it escalates into a severe issue that jeopardizes somebody’s suitability for a security clearance.
Background on continuous evaluation programs
Professionals with a US government security clearance are required to adhere to the National Security Clearance Adjudicative Guidelines to maintain their eligibility to access classified information. These professionals are subject to continuous evaluation programs that leverage automated record checks to assist in ongoing reviews of individuals’ eligibility for their security clearance. One of the adjudicative guidelines – Guideline F, “Financial Considerations” – maintains that failure to live within one’s means, unexplained affluence, and/or the inability to meet financial obligations can make somebody ineligible for a security clearance.
A review of recent clearance revocation decisions & appeals on the Defense Office of Hearings & Appeals website will find frequent mention of this guideline – in fact, it is the most cited guideline for clearance denials & revocations on the DOHA website. One might think that extreme events like consumer bankruptcies or home foreclosures are commonly cited against Guideline F, but that’s not the case. Most of the hearings and appeals documents referencing financial disqualifying behavior under Guideline F point to poor credit usage that is much easier to detect (and much more common), such as repeated failure to make payments on their loans or entering a state of severe over-indebtedness.
A new model for financial strain
TransUnion research has found most continuous evaluation programs are focused on catastrophic events where financial issues have persisted for months and are building to a terminal event. By the time somebody is facing repossession or filing for bankruptcy, the question of suitability for a clearance is moot and their access to classified information will be revoked. Instead, it is more productive to focus on the early warning signs of mounting financial stress where targeted intervention can remediate potential issues before they become security concerns.
As such, cleared workforce leaders should prioritize the use of alerts based on individuals’ credit reports that are designed to catch potentially problematic behavior in time for employers to address it before it becomes disqualifying under Guideline F. This is particularly important as financial problems tend to compound over time, meaning strain grows exponentially – a schematic example of this model is presented below (see Figure 1). A continuous vetting program that relies on “end stage” alerts, such as collections or bankruptcies, does not provide the potential for corrective action as one that incorporates more subtle early warning signs of financial distress.
Figure 1. Schematic representation of financial strain over time. While most continuous evaluation programs focus on disastrous “tail events” like bankruptcies, signs of growing strain can be seen much earlier.
Early indicators of financial strain
Security officers should be vigilant for early signs of financial strain and seek to identify issues while they can still be corrected. Importantly, these are the same sorts of indicators used by adversaries when identifying pressure points to recruit or coerce new intelligence assets within the US national security apparatus. Building automated alerting based on these data points into the continuous evaluation process can greatly erode the impact of growing financial strain by allowing security officers to proactively detect it and respond accordingly.
The above model highlights four indicators in particular:
1. Changes in repayment behavior
Consumers feeling financially pinched will typically lower the amount of aggregate excess payments made on debt obligations each month – they will start to pay just the minimum amount due or just the interest charges on their credit. A consumer who deviates from a history of paying their credit card balance in full each month and instead begins carrying a balance multiple months in a row is likely under financial pressure. Similarly, consumers who curtail their regular excess payments on their mortgages or auto loans may be experiencing a temporary liquidity constraint.
2. Credit utilization increases
As consumers begin maintaining a balance on their credit cards, that balance can continue to grow as it accrues interest and reflects additional spending. Using too much of one’s available credit can reduce financial resiliency as it limits consumers’ ability to absorb sudden shocks like unexpected expenses. Seriously high utilization may also signal that somebody is living beyond their means, has poor spending habits, and/or is generally on unsustainable financial footing. For example, a consumer that has used 75% of their total credit limit across all the credit cards in their wallet will likely feel much more financial strain compared to a consumer with a 20% utilization rate.
3. Inquiries for alternative credit
Consumers facing immediate liquidity issues may turn towards alternative credit arrangements – such as payday loans, title loans, or other short-term lending activity not typically reported to credit bureaus. Among cleared professionals, usage of alternative credit products could even be seen as a sign that somebody is purposefully trying to evade traditional credit reporting systems when navigating their financial constraints; it could also be a sign that a consumer has exhausted all traditional avenues for credit, which should raise questions about their financial status. An inquiry into such products is such an aberration for this population that it should demand follow-up.
4. New credit delinquencies
A payment delinquency is typically reported to credit bureaus once a credit trade has gone 30 days without adequate payment. New delinquencies are a sign that consumers cannot, or are choosing not to, make required payments on their debts and represent a significant financial weakness that can be exploited by adversaries. Delinquencies are derogatory information that negatively impact consumer’s credit scores, which can place further strain on these consumers as additional sources of credit become more costly to access.
Learn about improving your continuous evaluation process
Continuous evaluation programs are essential for maintaining the security and integrity of a cleared workforce. By identifying early signs of financial distress, especially amid the resumption of student loan repayments and ongoing economic uncertainty, security officers can take proactive steps to identify and mitigate insider threat risks.
TransUnion stands ready to be your partner in elevating actionable signs of mounting financial strain before they become a costly administrative and security burden. Let us help you save time, money, and reputation while protecting critical national security programs.
