Banks AI Push Pulls Lending Discrimination Into Question
- AI already has a history of bias against minorities
- In 2016 20.9% of black borrowers were rejected for mortgage loans
Banks that want to use artificial intelligence (AI) still have to adhere to several industry specific rules primarily around transparency. Most of the rules were put in place to protect poor and minority consumers, including laws which are supposed to ensure the equal treatment of customers. Are black people going to fall further behind in getting approved for loans and credit cards if banks start using AI for lending decisions?
Why This Matters: AI and deep learning technology already have a history of bias against minorities. There are laws in place like the Equal Credit Opportunity Act, which state banks have to prove they’re not discriminating based on traits like gender or race. “We want to understand how the decision is made, so that we can stand behind it and say that we’re not disfavoring someone,” said Hari Gopalkrishnan, client-facing platforms technology executive at Bank of America (BAC +0.96%) during its tech summit.
AI platforms taking over bank lending decisions could put black family wealth further behind. In 2016 20.9% of black borrowers and 15.5% of Hispanic borrowers were rejected for a loan, along with 8.1% of white applicants and 10.4% of Asian applicants, according to a Zillow report. The gap is significant because owning a home can help most people regardless of race, accumulate assets to boost their net worth.
What is deep learning technology? Let’s start with the tools used for deep learning, which include neural software networks whose structure roughly tries to simulate the human brain’s operations. These systems create outcomes with unprecedented accuracy and speed. However, the main issue here is not always clear on how the dense web of computations reaches a specific decision.
Situational Awareness: Banks in the past have argued they find themselves in a bind when staring down potentially conflicting government mandates to reduce balance sheet risk, while not discriminating against any one demographic group. As financial institutions dive further into deep learning technology, Bank of America and Capital One (COF +0.11%) have AI researchers working on how to make the opaque technology transparent enough for wider use.
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