This article originally ran in American Banker
As bank regulators once again question the fairness of artificial intelligence in loan decisions, online lenders and fintechs agree that the technology should be used carefully, transparently and with tests for bias and disparate impact.
Rohit Chopra, director of the Consumer Financial Protection Bureau, warned recently that the artificial intelligence in loan decisions could lead to illegal discrimination. Online lenders say that with the right safeguards in place and good motives, loan decisions made using AI are more fair than those of traditional underwriting systems. Plus, tech-enabled loans expand access to credit, they claim.
The fresh regulatory scrutiny from a Democratic administration could bring new rules and enforcement actions that affect the fintechs and banks that use AI in lending decisions, and the industry is fine with that.
“AI is not perfect,” said Jason Altieri, general counsel and chief compliance officer at the online lender Happy Money and former general counsel at LendingClub. “If you have humans designing something, bias will creep in. It just will. It may be by the designers or it may be the limitations of the data that they’re using.”
‘Algorithms can never be free of bias’
“Left to their own devices, there’s no question that these algorithms will discriminate when they encounter a subpopulation that is not well represented in the data,” said Kareem Saleh, founder and CEO of FairPlay, a developer of software that tests loan decisions for signs of bias, disparate impact and discrimination. People of color, for instance, have historically been excluded from the lending system, and therefore less data is available about how their loans perform.
“When you encounter those folks, having very little data about them, the algorithm will necessarily assume that they’re riskier,” Saleh said.