Budapest Post

Cum Deo pro Patria et Libertate
Budapest, Europe and world news

The financial sector is adopting AI to reduce bias and make smarter, more equitable loan decisions. But the sector needs to be aware of the pitfalls for it to work.

The financial sector is adopting AI to reduce bias and make smarter, more equitable loan decisions. But the sector needs to be aware of the pitfalls for it to work.

The financial sector has a long history of making inequitable loan decisions.

Redlining, a discriminatory practice that started in the 1930s, is when a bank denies a customer a loan because of their ZIP code. These institutions physically drew a red line around low-income neighborhoods, segregating these residents from any opportunity to borrow money.

Redlining disproportionately affects Black Americans and immigrant communities. This denies them opportunities like homeownership, starting a small business, and earning a postsecondary education.

While it became illegal in 1974 for lenders to reject loans based on race, gender, or age under the Equal Credit Opportunity Act, studies have found laws did little to lessen lending disparities.

The rise of machine learning and big data means decisions can be controlled for human bias. But just adopting the tech isn't enough to overhaul discriminatory loan decisions.

A 2019 analysis of US Home Mortgage Disclosure Act data by The Markup, a nonprofit dedicated to data-driven journalism, found lenders nationwide were nearly twice as likely to deny Black applicants as they were to reject similarly qualified white applicants despite adopting machine-learning and big-data tech. Latinos, Asians, and Native Americans were also denied mortgages at higher rates than white Americans with the same financial background.

Governments around the world have indicated there will be a crackdown on "digital redlining," where algorithms discriminate against marginalized groups.

Rohit Chopra, the head of the US's Consumer Financial Protection Bureau, said there should be harsher penalties for these biases: "Lending algorithms can reinforce bias," he told The Philadelphia Inquirer. "There's discrimination baked into the computer code."

Meanwhile, politicians in the European Union plan to introduce the Artificial Intelligence Act for stricter rules around the use of AI in filtering everything from job and university applicants to loan candidates.


Bringing bias to light


It's easy to blame technology for discriminatory lending practices, Sian Townson, a director at Oliver Wyman's digital practice, told Insider. But it doesn't deserve the responsibility.

"Recent discussions have made it sound like AI invented bias in lending," she said. "But all the computational modeling has done is quantify the bias and make us more aware of it."

While identifiers like race, sex, religion, and marital status are forbidden to be considered in credit-score calculations, algorithms can put groups of people at a disadvantage.

For instance, some applicants may have shorter credit histories because of their religious beliefs. For example, in Islam, paying interest is seen as a sin. This can be a mark against Muslims, even though other factors may indicate they would be good borrowers.

While other data points, like mobile payments, are not a traditional form of credit history, Townson said, they can show a pattern of regular payments. "The aim of AI was never to repeat history. It was to make useful predictions about the future," she added.


Testing and correcting for bias


Software developers like the US's FairPlay — which recently raised $10 million in Series A funding — have products that detect and help reduce algorithmic bias for people of color, women, and other historically disadvantaged groups.

FairPlay's customers include the financial institution Figure Technologies in San Francisco, the online-personal-loan provider Happy Money, and Octane Lending.

One of its application-programming-interface products, Second Look, reevaluates declined loan applicants for discrimination. It pulls data from the US census and the Consumer Financial Protection Bureau to help recognize borrowers in protected classes, given financial institutions are forbidden to collect information directly about race, age, and gender.

Rajesh Iyer, the global head of AI and machine learning for financial services at Capgemini USA, said lenders could minimize discrimination by putting their AI solutions through about 23 bias tests. This can be done internally or by a third-party company.

One bias test analyzes for "disproportionate impact." This detects whether a group of consumers is being more adversely affected by AI than other groups — and, more importantly, why.

Fannie Mae and Freddie Mac, which back the majority of mortgages in the US, recently found people of color were more likely to list their source of income from the "gig economy." This disproportionately stopped them from getting mortgages because gig incomes are seen as unstable, even if someone has a strong rent-payment history.

In looking to make its lending decisions fairer, Fannie Mae announced it would start factoring rental histories into credit-evaluation decisions. By inputting new data, humans essentially teach the AI to eliminate bias.


Human feedback to keep AI learning


AI can learn only from the data it receives. This makes a feedback loop with human input important for AI lending platforms, as it enables institutions to make more equitable loan decisions.

While it's good practice for humans to weigh in when decisions are too close to call for machines, it's essential for people to review a proportion of clear-cut decisions, too, Iyer told Insider.

"This ensures that the solutions adjust themselves, as it gets inputs from the human reviews through incremental or reinforced learning," Iyer said.

AI Disclaimer: An advanced artificial intelligence (AI) system generated the content of this page on its own. This innovative technology conducts extensive research from a variety of reliable sources, performs rigorous fact-checking and verification, cleans up and balances biased or manipulated content, and presents a minimal factual summary that is just enough yet essential for you to function as an informed and educated citizen. Please keep in mind, however, that this system is an evolving technology, and as a result, the article may contain accidental inaccuracies or errors. We urge you to help us improve our site by reporting any inaccuracies you find using the "Contact Us" link at the bottom of this page. Your helpful feedback helps us improve our system and deliver more precise content. When you find an article of interest here, please look for the full and extensive coverage of this topic in traditional news sources, as they are written by professional journalists that we try to support, not replace. We appreciate your understanding and assistance.
Newsletter

Related Articles

0:00
0:00
Close
One in Three Europeans Now Uses TikTok, According to the Chinese Tech Giant
Could AI Nursing Robots Help Healthcare Staffing Shortages?
NATO Deploys ‘Eastern Sentry’ After Russian Drones Violate Polish Airspace
The New Life of Novak Djokovic
German police raid AfD lawmaker’s offices in inquiry over Chinese payments
Volkswagen launches aggressive strategy to fend off Chinese challenge in Europe’s EV market
France Erupts in Mass ‘Block Everything’ Protests on New PM’s First Day
Poland Shoots Down Russian Drones in Airspace Violation During Ukraine Attack
Apple Introduces Ultra-Thin iPhone Air, Enhanced 17 Series and New Health-Focused Wearables
Macron Appoints Sébastien Lecornu as Prime Minister Amid Budget Crisis and Political Turmoil
Vatican hosts first Catholic LGBTQ pilgrimage
Apple Unveils iPhone 17 Series, iPhone Air, Apple Watch 11 and More at 'Awe Dropping' Event
France joins Eurozone’s ‘periphery’ as turmoil deepens, say investors
France Faces New Political Crisis, again, as Prime Minister Bayrou Pushed Out
Nayib Bukele Points Out Belgian Hypocrisy as Brussels Considers Sending Army into the Streets
France, at an Impasse, Heads Toward Another Government Collapse
The Country That Got Too Rich? Public Spending Dominates Norway Election
EU Proposes Phasing Out Russian Oil and Gas by End of 2027 to End Energy Dependence
More Than 150,000 Followers for a Fictional Character: The New Influencers Are AI Creations
EU Prepares for War
Trump Threatens Retaliatory Tariffs After EU Imposes €2.95 Billion Fine on Google
Tesla Board Proposes Unprecedented One-Trillion-Dollar Performance Package for Elon Musk
Gold Could Reach Nearly $5,000 if Fed Independence Is Undermined, Goldman Sachs Warns
Uruguay, Colombia and Paraguay Secure Places at 2026 World Cup
Trump Administration Advances Plans to Rebrand Pentagon as Department of War Instead of the Fake Term Department of Defense
Big Tech Executives Laud Trump at White House Dinner, Unveil Massive U.S. Investments
Tether Expands into Gold Sector with Profit-Driven Diversification
‘Looks Like a Wig’: Online Users Express Concern Over Kate Middleton
Florida’s Vaccine Revolution: DeSantis Declares War on Mandates
Trump’s New War – and the ‘Drug Tyrant’ Fearing Invasion: ‘1,200 Missiles Aimed at Us’
"The Situation Has Never Been This Bad": The Fall of PepsiCo
At the Parade in China: Laser Weapons, 'Eagle Strike,' and a Missile Capable of 'Striking Anywhere in the World'
The Fashion Designer Who Became an Italian Symbol: Giorgio Armani Has Died at 91
Putin Celebrates ‘Unprecedentedly High’ Ties with China as Gazprom Seals Power of Siberia-2 Deal
China Unveils New Weapons in Grand Military Parade as Xi Hosts Putin and Kim
Rapper Cardi B Cleared of Liability in Los Angeles Civil Assault Trial
Google Avoids Break-Up in U.S. Antitrust Case as Stocks Rise
Couple celebrates 80th wedding anniversary at assisted living facility in Lancaster
Information Warfare in the Age of AI: How Language Models Become Targets and Tools
The White House on LinkedIn Has Changed Their Profile Picture to Donald Trump
"Insulted the Prophet Muhammad": Woman Burned Alive by Angry Mob in Niger State, Nigeria
Trump Responds to Death Rumors – Announces 'Missile City'
Druzhba Pipeline Incident Sparks Geopolitical Tensions
Cost of Opposition Leader Péter Magyar's Economic Plan Revealed
Germany in Turmoil: Ukrainian Teenage Girl Pushed to Death by Illegal Iraqi Migrant
United Krack down on human rights: Graham Linehan Arrested at Heathrow Over Three X Posts, Hospitalised, Released on Bail with Posting Ban
Asian and Middle Eastern Investors Avoid US Markets
Ray Dalio Warns of US Shift to Autocracy
Eurozone Inflation Rises to 2.1% in August
Russia and China Sign New Gas Pipeline Deal
×