London Daily

Focus on the big picture.
Thursday, Jul 10, 2025

The financial sector is adopting AI to reduce bias and make smarter, more equitable loan decisions. But the sector needs to be aware of the pitfalls for it to work.

The financial sector is adopting AI to reduce bias and make smarter, more equitable loan decisions. But the sector needs to be aware of the pitfalls for it to work.

The financial sector has a long history of making inequitable loan decisions.

Redlining, a discriminatory practice that started in the 1930s, is when a bank denies a customer a loan because of their ZIP code. These institutions physically drew a red line around low-income neighborhoods, segregating these residents from any opportunity to borrow money.

Redlining disproportionately affects Black Americans and immigrant communities. This denies them opportunities like homeownership, starting a small business, and earning a postsecondary education.

While it became illegal in 1974 for lenders to reject loans based on race, gender, or age under the Equal Credit Opportunity Act, studies have found laws did little to lessen lending disparities.

The rise of machine learning and big data means decisions can be controlled for human bias. But just adopting the tech isn't enough to overhaul discriminatory loan decisions.

A 2019 analysis of US Home Mortgage Disclosure Act data by The Markup, a nonprofit dedicated to data-driven journalism, found lenders nationwide were nearly twice as likely to deny Black applicants as they were to reject similarly qualified white applicants despite adopting machine-learning and big-data tech. Latinos, Asians, and Native Americans were also denied mortgages at higher rates than white Americans with the same financial background.

Governments around the world have indicated there will be a crackdown on "digital redlining," where algorithms discriminate against marginalized groups.

Rohit Chopra, the head of the US's Consumer Financial Protection Bureau, said there should be harsher penalties for these biases: "Lending algorithms can reinforce bias," he told The Philadelphia Inquirer. "There's discrimination baked into the computer code."

Meanwhile, politicians in the European Union plan to introduce the Artificial Intelligence Act for stricter rules around the use of AI in filtering everything from job and university applicants to loan candidates.


Bringing bias to light


It's easy to blame technology for discriminatory lending practices, Sian Townson, a director at Oliver Wyman's digital practice, told Insider. But it doesn't deserve the responsibility.

"Recent discussions have made it sound like AI invented bias in lending," she said. "But all the computational modeling has done is quantify the bias and make us more aware of it."

While identifiers like race, sex, religion, and marital status are forbidden to be considered in credit-score calculations, algorithms can put groups of people at a disadvantage.

For instance, some applicants may have shorter credit histories because of their religious beliefs. For example, in Islam, paying interest is seen as a sin. This can be a mark against Muslims, even though other factors may indicate they would be good borrowers.

While other data points, like mobile payments, are not a traditional form of credit history, Townson said, they can show a pattern of regular payments. "The aim of AI was never to repeat history. It was to make useful predictions about the future," she added.


Testing and correcting for bias


Software developers like the US's FairPlay — which recently raised $10 million in Series A funding — have products that detect and help reduce algorithmic bias for people of color, women, and other historically disadvantaged groups.

FairPlay's customers include the financial institution Figure Technologies in San Francisco, the online-personal-loan provider Happy Money, and Octane Lending.

One of its application-programming-interface products, Second Look, reevaluates declined loan applicants for discrimination. It pulls data from the US census and the Consumer Financial Protection Bureau to help recognize borrowers in protected classes, given financial institutions are forbidden to collect information directly about race, age, and gender.

Rajesh Iyer, the global head of AI and machine learning for financial services at Capgemini USA, said lenders could minimize discrimination by putting their AI solutions through about 23 bias tests. This can be done internally or by a third-party company.

One bias test analyzes for "disproportionate impact." This detects whether a group of consumers is being more adversely affected by AI than other groups — and, more importantly, why.

Fannie Mae and Freddie Mac, which back the majority of mortgages in the US, recently found people of color were more likely to list their source of income from the "gig economy." This disproportionately stopped them from getting mortgages because gig incomes are seen as unstable, even if someone has a strong rent-payment history.

In looking to make its lending decisions fairer, Fannie Mae announced it would start factoring rental histories into credit-evaluation decisions. By inputting new data, humans essentially teach the AI to eliminate bias.


Human feedback to keep AI learning


AI can learn only from the data it receives. This makes a feedback loop with human input important for AI lending platforms, as it enables institutions to make more equitable loan decisions.

While it's good practice for humans to weigh in when decisions are too close to call for machines, it's essential for people to review a proportion of clear-cut decisions, too, Iyer told Insider.

"This ensures that the solutions adjust themselves, as it gets inputs from the human reviews through incremental or reinforced learning," Iyer said.

Newsletter

Related Articles

0:00
0:00
Close
Severe Heatwave Claims 2,300 Lives Across Europe
NVIDIA Achieves Historic Milestone as First Company Valued at $4 Trillion
Declining Beer Consumption Signals Cultural Shift in Germany
Linda Yaccarino Steps Down as CEO of X After Two Years
US Imposes New Tariffs on Brazilian Exports Amid Political Tensions
Azerbaijan and Armenia are on the brink of a historic peace deal.
Emails Leaked: How Passenger Luggage Became a Side Income for Airport Workers
Polish MEP: “Dear Leftists - China is laughing at you, Russia is laughing, India is laughing”
BRICS Expands Membership with Indonesia and Ten New Partner Countries
Weinstein Victim’s Lawyer Says MeToo Movement Still Strong
U.S. Enacts Sweeping Tax and Spending Legislation Amid Trade Policy Shifts
Football Mourns as Diogo Jota and Brother André Silva Laid to Rest in Portugal
Labour Expected to Withdraw Support for Special Needs Funding Model
Leaked Audio Reveals Tory Aide Defending DEI Record
Elon Musk Founds a Party Following a Poll on X: "You Wanted It – You Got It!"
London Stock Exchange Faces Historic Low in Initial Public Offerings
A new online platform has emerged in the United Kingdom, specifically targeting Muslim men seeking virgin brides
Trump Celebrates Independence Day with B-2 Flyover and Signs Controversial Legislation
Boris Johnson Urges Conservatives to Ignore Farage
SNP Ordered to Update Single-Sex Space Guidance Within Days
Starmer Set to Reject Calls for Wealth Taxes
Stolen Century-Old Rolls-Royce Recovered After Hotel Theft
Macron Presses Starmer to Recognise Palestinian State
Labour Delayed Palestine Action Ban Over Riot Concerns
Swinney’s Tax Comments ‘Offensive to Scots’, Say Tories
High Street Retailers to Enforce Bans on Serial Shoplifters
Music Banned by Henry VIII to Be Performed After 500 Years
Steve Coogan Says Working Class Is Being ‘Ethnically Cleansed’
Home Office Admits Uncertainty Over Visa Overstayer Numbers
JD Vance Questions Mandelson Over Reform Party’s Rising Popularity
Macron to Receive Windsor Carriage Ride in Royal Gesture
Labour Accused of ‘Hammering’ Scots During First Year in Power
BBC Head of Music Stood Down Amid Bob Vylan Controversy
Corbyn Eyes Hard-Left Challenge to Starmer’s Leadership
London Tube Trains Suspended After Major Fire Erupts Nearby
Richard Kemp: I Felt Safer in Israel Under Attack Than in the UK
Cyclist Says Police Cited Human Rights Act for Riding No-Handed
China’s Central Bank Consults European Peers on Low-Rate Strategies
AI Raises Alarms Over Long-Term Job Security
Saudi Arabia Maintains Ties with Iran Despite Israel Conflict
Musk Battles to Protect Tesla Amid Trump Policy Threats
Air France-KLM Acquires Majority Stake in Scandinavian Airlines
UK Educators Sound Alarm on Declining Child Literacy
Shein Fined €40 Million in France Over Misleading Discounts
Brazil’s Lula Visits Kirchner During Argentina House Arrest
Trump Scores Legislative Win as House Passes Tax Reform Bill
Keir Starmer Faces Criticism After Rocky First Year in Power
DJI Launches Heavy-Duty Coaxial Quadcopter with 80 kg Lift Capacity
U.S. Senate Approves Major Legislation Dubbed the 'Big Beautiful Bill'
Largest Healthcare Fraud Takedown in U.S. History Announced by DOJ
×