Warren Seeking Info on Discrimination in Automated Lending Algorithms

Written by on June 12, 2019

Sen. Elizabeth Warren, D-Mass., is calling on the heads of financial regulatory bodies to disclose information on reports finding apparent discrimination in automated lending algorithms.

In a letter Wednesday, Warren mentioned a 2018 analysis at the University of California, Berkeley, that found financial technology companies’ algorithmic models may lead to discriminatory outcomes or even overcharges.

“While some [financial technology companies] products have the potential to expand access to financial services for underserved populations, we believe these new business models and products also present new challenges for regulators,” Warren wrote.

“Recent research highlights this tension, demonstrating both the opportunity of algorithmic underwriting’s potential to reduce discrimination, while also emphasizing the technologies’ current shortcomings,” she added.

Warren noted the UC Berkeley analysis found that both face-to-face and financial tech lenders charge African American and Latino borrowers interest rates that are six to nine basis points higher than those they charge white or Asian borrowers with similar finances.

Similar disparities are found in traditional underwriting, she wrote.

“In other words, the algorithms used by [financial technology companies] lenders are as discriminatory as loan officers,” Warren wrote. “Berkeley researchers estimate that lending discrimination results in Latinx and African American borrowers ‘pay[ing] $250-500M per year in extra mortgage interest.'”

Warren called on the officials to provide information on their agencies’ efforts to combat lending discrimination. She also questioned whether they have conducted analyses on the impact of algorithms on minority borrowers and, if not, whether they plan to.

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Source: NewsMax Politics

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