Leading with fairness — lessons from across the Atlantic

The following of a UK approach to consumer fairness could help anti-discrimination efforts by US regulators. Chief Operating Officer, Fred Becker, explains how.

Recently the Consumer Financial Protection Bureau (CFPB) asked the public for thoughts on how to update its oversight of the Equal Credit Opportunity Act, the key Federal law prohibiting creditors from discriminating against credit applicants.

I was glad that the CFPB opened the door for public comment and appreciated this opportunity to weigh in. More businesses should follow suit by publicly talking about reducing discrimination in credit. A sentiment that our mission — to make credit equitable for everyone — reminds us of everyday.

Founded in London in 2014, Aire expanded into the US last year. Our work now stretches out across the Atlantic and was bolstered in March by the hiring of our US Operations Director and Counsel, Tom Oscherwitz.

So, what can be done to promote ‘fair, equitable and non-discriminatory access to credit’?

Here’s a summary of my suggestions to the CFPB:

• First — the proper consideration of new data sources. At Aire, we bring brand new, first-party data, gathered directly and compliantly from the consumer, into the credit scoring process to empower lenders to act with an increased understanding of the individuality of their customer.
• Second — while we recognize that addressing equal credit opportunity is complex, one step forward is for companies to treat fairness as a core pillar of their business. We know this can be done because the UK counterpart to the US, the Financial Conduct Authority (FCA), already mandates this.
• As we told the CFPB, the FCA’s approach could supplement directives of ECOA. Put simply, the FCA proactively promotes fairness, while ECOA targets discriminatory behaviors and outcomes, whether the discrimination is overt, involves disparate treatment, or disparate impact. In our view, the very act of building a credit model — before a consumer has any dealings with a lender — should incorporate fairness objectives.
• Third — Fairness implicates the definition of problems an institution chooses to solve, the representativeness of the business stakeholders tasked with evaluating the problem, and the issues businesses should consider when devising a solution. Much discrimination can be mitigated if a lender considers before a product or target consumer even exists what a fair product ought to look like, how many consumers are affected, how the severe the impact is on them, and whether consumers are able to change their behavior or if the decision is based on intrinsic characteristics.
• The CFPB’s work in the area of ‘disparate impact’’ is an example of where fairness principles could add supplementary value. Disparate impact can only be discovered after a credit model is built and consumer outcomes are observed. This focus on end results can create incentives for model builders to tweak models to meet regulatory requirements rather than fundamentally change their approach. We believe discrimination in outputs could be mitigated if companies also considered fairness issues throughout the product lifecycle and whenever they engage with consumers.

In summary, we believe companies need to tackle discrimination from two sides: first they must develop internal compliance policies and procedures to prevent discrimination. But they must then go further; they must infuse fairness into the foundations of their DNA.

Only with such a singular corporate remit can we expect to see real, systemic change, delivering a lasting, positive impact for businesses — and credit where it’s due for their customers.

Access our guide for US lenders to first-party data to find out more: what it is, why it matters and how we all stand to benefit, here.