NCRC, Innovation Council Call For CFPB To Clarify Lender Demographic Data Guidance

The National Community Reinvestment Coalition (NCRC) and a majority of its Innovation Council for Financial Inclusion (IC) called on the Consumer Financial Protection Bureau (CFPB) to clarify how lenders can request and use customer demographic data including race.

Such clarity would help lenders to self-test for fair lending by soliciting such data. Federal fair lending laws allow such solicitation. In the statement, the IC makes the case that if the CFPB issued an interpretive rule clarifying how lenders can collect this data, they would be better able to self-test and reduce the risk of disparate impact in their use of Artificial Intelligence.

The statement issued last week by NCRC, Lending Club, Zest.AI, PayPal, Oportun, and Upstart expands on a prior IC statement from July 2021 (“Statement on Request for Guidance on Implementation of Disparate Impact Under ECOA”).  

Understanding the demographic characteristics of loan applicants is an essential part of conducting fair lending testing. Currently, lenders must ask for demographic information when taking mortgage applications and will soon have similar responsibilities for small business lending. 

However, the same rules do not apply to consumer credit. Instead, lenders use statistical techniques to make inferences about the demographic characteristics of borrowers based on their last name and census tract. 

This modeled approach has significant shortcomings. Conclusions can only be drawn for a group and not for specific individuals, rare surnames are thrown out, and secular shifts in marriage and gentrification are reducing the accuracy of predictions. Lenders can voluntarily collect demographic data, but because the rules for doing so lack clarity, they rarely do because of regulatory and compliance concerns.

The Statement on the Need for An Interpretive Rule Concerning the Solicitation of Demographic Data for the Purposes of Fair Lending Self-Testing calls for the CFPB to issue an interpretive rule clarifying how lenders could solicit demographic information directly from applicants to enhance their fair lending testing procedures.

Adam Rust is Senior Policy Advisor at NCRC.

Photo by Clay Banks on Unsplash.

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Redlining and Neighborhood Health

Before the pandemic devastated minority communities, banks and government officials starved them of capital.

Lower-income and minority neighborhoods that were intentionally cut off from lending and investment decades ago today suffer not only from reduced wealth and greater poverty, but from lower life expectancy and higher prevalence of chronic diseases that are risk factors for poor outcomes from COVID-19, a new study shows.

The new study, from the National Community Reinvestment Coalition (NCRC) with researchers from the University of Wisconsin–Milwaukee Joseph J. Zilber School of Public Health and the University of Richmond’s Digital Scholarship Lab, compared 1930’s maps of government-sanctioned lending discrimination zones with current census and public health data.

Table of Content

  • Executive Summary
  • Introduction
  • Redlining, the HOLC Maps and Segregation
  • Segregation, Public Health and COVID-19
  • Methods
  • Results
  • Discussion
  • Conclusion and Policy Recommendations
  • Citations
  • Appendix

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