Artificial intelligence has crept into our daily lives, that we are aware of it. From opening our smartphones with facial recognition to helping with travel and commuting, to personalizing our flows on social networks, AI is with us from dawn to dusk and beyond. .
But, there is a disturbing new use of AI on the horizon. AI and machine learning could be leveraged by the lending industry to make lending decisions.
It’s a prospect that has sparked warnings from consumer advocates, pundits and even banks.
Federal bank regulators have asked for comment on the matter, and while there is interest in the prospect, there are also concerns rightly expressed about discrimination and fair lending.
FinRegLab, a Washington-based research group that has launched a large-scale investigation into the use of AI in financial services, said machine learning could be transformational. This could prevent the increased costs and risks associated with using more traditional tools to assess the value of a particular customer (a person or a business.)
But there is another kind of risk, a pitfall to be avoided: AI and machine learning could fuel historical discrimination and financial exclusion. One advocacy group put it bluntly: “The use of complex and opaque algorithmic models in consumer credit transactions also increases the risk of unlawful discrimination and unfair deceptive and abusive practices,” wrote the National Consumer. Boston Law Center.
Jo Ann Barefoot, former deputy currency controller and staff member of the Senate Banking Committee who now heads the Alliance for Innovative Regulation in Washington, said there were many possible benefits of using AI in underwriting credit. But she warned that regulators must ensure that banks comply with fair loan laws and that machine learning does not lead to denials of credit for prohibited reasons such as race and gender.
And she acknowledged that it would be a “very difficult issue to regulate.”
The Federal Reserve, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Consumer Financial Protection Bureau, and the National Credit Union Administration would work together to collect information for consistency and transparency.
There is a history of bias in the financial industry. All steps must be taken to ensure that artificial intelligence and machine learning do not create or perpetuate injustice.
A fair loan is essential. It is the basis of American ideals such as owning a home or starting a business. The watchword for moving forward must be caution.