On 10/22/2021, the CFPB released the remarks of new CFPB Director Rohit Chopra at a Joint DOJ, CFPB, and OCC press conference on the Trustmark National Bank Enforcement Action. While describing the enforcement action (which we covered here), Mr. Chopra warned of “digital redlining.” Specifically, the following comments were made related to digital redlining:
“If we allow racist and discriminatory policies to persist, we will not live up to our country’s ideals. We need a fair housing market that is free from old forms of redlining, as well as new digital and algorithmic redlining….
Technology companies and financial institutions are amassing massive amounts of data and using it to make more and more decisions about our lives, including loan underwriting and advertising.
While machines crunching numbers might seem capable of taking human bias out of the equation, that’s not what is happening.
Findings from academic studies and news reporting raise serious questions about algorithmic bias. For example, a statistical analysis of 2 million mortgage applications found that Black families were 80% more likely to be denied by an algorithm when compared to white families with similar financial and credit backgrounds. The response of mortgage companies has been that researchers do not have all the data that feeds into their algorithms or full knowledge of the algorithms. But their defense illuminates the problem: the algorithms are black boxes behind brick walls. When consumers and regulators do not know how decisions are made by the algorithms, consumers are unable to participate in a fair and competitive market free from bias. Algorithms can help remove bias, but black box underwriting algorithms are not creating a more equal playing field and only exacerbate the biases fed into them.
Given what we have seen in other contexts, the speed with which banks and lenders are turning lending and advertising decisions over to algorithms is concerning. Too many families were victimized by the robo-signing scandals from the last crisis, and we must not allow robo-discrimination to proliferate in a new crisis.
We should never assume that algorithms will be free of bias. If we want to move toward a society where each of us has equal opportunities, we need to investigate whether discriminatory black box models are undermining that goal.
I am pleased that the CFPB will continue to contribute to the all-of-government mission to root out all forms of redlining, including algorithmic redlining.”
The full CFPB release can be found here.
