Bahama Times

Friday, Mar 29, 2024

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.

Newsletter

Related Articles

Bahama Times
0:00
0:00
Close
Paper straws found to contain long-lasting and potentially toxic chemicals - study
FTX's Bankman-Fried headed for jail after judge revokes bail
Blackrock gets half a trillion dollar deal to rebuild Ukraine
Israel: Unprecedented Civil Disobedience Looms as IDF Reservists Protest Judiciary Reform
America's First New Nuclear Reactor in Nearly Seven Years Begins Operations
Southeast Asia moves closer to economic unity with new regional payments system
Today Hunter Biden’s best friend and business associate, Devon Archer, testified that Joe Biden met in Georgetown with Russian Moscow Mayor's Wife Yelena Baturina who later paid Hunter Biden $3.5 million in so called “consulting fees”
Singapore Carries Out First Execution of a Woman in Two Decades Amid Capital Punishment Debate
Google testing journalism AI. We are doing it already 2 years, and without Google biased propoganda and manipulated censorship
Unlike illegal imigrants coming by boats - US Citizens Will Need Visa To Travel To Europe in 2024
Musk announces Twitter name and logo change to X.com
The politician and the journalist lost control and started fighting on live broadcast.
The future of sports
Unveiling the Black Hole: The Mysterious Fate of EU's Aid to Ukraine
Farewell to a Music Titan: Tony Bennett, Renowned Jazz and Pop Vocalist, Passes Away at 96
Alarming Behavior Among Florida's Sharks Raises Concerns Over Possible Cocaine Exposure
Transgender Exclusion in Miss Italy Stirs Controversy Amidst Changing Global Beauty Pageant Landscape
Joe Biden admitted, in his own words, that he delivered what he promised in exchange for the $10 million bribe he received from the Ukraine Oil Company.
TikTok Takes On Spotify And Apple, Launches Own Music Service
Global Trend: Using Anti-Fake News Laws as Censorship Tools - A Deep Dive into Tunisia's Scenario
Arresting Putin During South African Visit Would Equate to War Declaration, Asserts President Ramaphosa
Hacktivist Collective Anonymous Launches 'Project Disclosure' to Unearth Information on UFOs and ETIs
Typo sends millions of US military emails to Russian ally Mali
Server Arrested For Theft After Refusing To Pay A Table's $100 Restaurant Bill When They Dined & Dashed
The Changing Face of Europe: How Mass Migration is Reshaping the Political Landscape
China Urges EU to Clarify Strategic Partnership Amid Trade Tensions
Europe is boiling: Extreme Weather Conditions Prevail Across the Continent
The Last Pour: Anchor Brewing, America's Pioneer Craft Brewer, Closes After 127 Years
Democracy not: EU's Digital Commissioner Considers Shutting Down Social Media Platforms Amid Social Unrest
Sarah Silverman and Renowned Authors Lodge Copyright Infringement Case Against OpenAI and Meta
Italian Court's Controversial Ruling on Sexual Harassment Ignites Uproar
Why Do Tech Executives Support Kennedy Jr.?
The New York Times Announces Closure of its Sports Section in Favor of The Athletic
BBC Anchor Huw Edwards Hospitalized Amid Child Sex Abuse Allegations, Family Confirms
Florida Attorney General requests Meta CEO's testimony on company's platforms' alleged facilitation of illicit activities
The Distorted Mirror of actual approval ratings: Examining the True Threat to Democracy Beyond the Persona of Putin
40,000 child slaves in Congo are forced to work in cobalt mines so we can drive electric cars.
BBC Personalities Rebuke Accusations Amidst Scandal Involving Teen Exploitation
A Swift Disappointment: Why Is Taylor Swift Bypassing Canada on Her Global Tour?
Historic Moment: Edgars Rinkevics, EU's First Openly Gay Head of State, Takes Office as Latvia's President
Bye bye democracy, human rights, freedom: French Cops Can Now Secretly Activate Phone Cameras, Microphones And GPS To Spy On Citizens
The Poor Man With Money, Mark Zuckerberg, Unveils Twitter Replica with Heavy-Handed Censorship: A New Low in Innovation?
Unilever Plummets in a $2.5 Billion Free Fall, to begin with: A Reckoning for Misuse of Corporate Power Against National Interest
Beyond the Blame Game: The Need for Nuanced Perspectives on America's Complex Reality
Twitter Targets Meta: A Tangle of Trade Secrets and Copycat Culture
The Double-Edged Sword of AI: AI is linked to layoffs in industry that created it
US Sanctions on China's Chip Industry Backfire, Prompting Self-Inflicted Blowback
Meta Copy Twitter with New App, Threads
The New French Revolution
BlackRock Bitcoin ETF Application Refiled, Naming Coinbase as ‘Surveillance-Sharing’ Partner
×