Beautiful Virgin Islands

Monday, Oct 06, 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

Beautiful Virgin Islands
0:00
0:00
Close
Munich Airport Reopens After Second Drone Shutdown
France Names New Government Amid Political Crisis
Trump Stands Firm in Shutdown Showdown and Declares War on Drug Cartels — Turning Crisis into Opportunity
Surge of U.S. Billionaires Transforms London’s Peninsula Apartments into Ultra-Luxury Stronghold
Pro Europe and Anti-War Babiš Poised to Return to Power After Czech Parliamentary Vote
Jeff Bezos Calls AI Surge a ‘Good’ Bubble, Urges Focus on Lasting Innovation
Japan’s Ruling Party Chooses Sanae Takaichi, Clearing Path to First Female Prime Minister
Sean ‘Diddy’ Combs Sentenced to Fifty Months in Prison Following Prostitution Conviction
Taylor Swift’s ‘Showgirl’ Launch Extends Billion-Dollar Empire
Trump Administration Launches “TrumpRx” Plan to Enable Direct Drug Sales at Deep Discounts
Trump Announces Intention to Impose 100 Percent Tariff on Foreign-Made Films
Altman Says GPT-5 Already Outpaces Him, Warns AI Could Automate 40% of Work
Singapore and Hong Kong Vie to Dominate Asia’s Rising Gold Trade
Trump Organization Teams with Saudi Developer on $1 Billion Trump Plaza in Jeddah
Manhattan Sees Surge in Office-to-Housing Conversions, Highest Since 2008
Switzerland and U.S. Issue Joint Assurance Against Currency Manipulation
Electronic Arts to Be Taken Private in Historic $55 Billion Buyout
Thomas Jacob Sanford Named as Suspect in Deadly Michigan Church Shooting and Arson
Russian Research Vessel 'Yantar' Tracked Mapping Europe’s Subsea Cables, Raising Security Alarms
New York Man Arrested After On-Air Confession to 2017 Parents’ Murders
U.S. Defense Chief Orders Sudden Summit of Hundreds of Generals and Admirals
Global Cruise Industry Posts Dramatic Comeback with 34.6 Million Passengers in 2024
Trump Claims FBI Planted 274 Agents at Capitol Riot, Citing Unverified Reports
India: Internet Suspended in Bareilly Amid Communal Clashes Between Muslims and Hindus
Supreme Court Extends Freeze on Nearly $5 Billion in U.S. Foreign Aid at Trump’s Request
Archaeologists Recover Statues and Temples from 2,000-Year-Old Sunken City off Alexandria
China Deploys 2,000 Workers to Spain to Build Major EV Battery Factory, Raising European Dependence
Speed Takes Over: How Drive-Through Coffee Chains Are Rewriting U.S. Coffee Culture
U.S. Demands Brussels Scrutinize Digital Rules to Prevent Bias Against American Tech
Ringo Starr Champions Enduring Beatles Legacy While Debuting Las Vegas Art Show
Private Equity’s Fundraising Surge Triggers Concern of European Market Shake-Out
Colombian President Petro Vows to Mobilize Volunteers for Gaza and Joins List of Fighters
FBI Removes Agents Who Kneeled at 2020 Protest, Citing Breach of Professional Conduct
Trump Alleges ‘Triple Sabotage’ at United Nations After Escalator and Teleprompter Failures
Shock in France: 5 Years in Prison for Former President Nicolas Sarkozy
Tokyo’s Jimbōchō Named World’s Coolest Neighbourhood for 2025
European Officials Fear Trump May Shift Blame for Ukraine War onto EU
BNP Paribas Abandons Ban on 'Controversial Weapons' Financing Amid Europe’s Defence Push
Typhoon Ragasa Leaves Trail of Destruction Across East Asia Before Making Landfall in China
The Personality Rights Challenge in India’s AI Era
Big Banks Rebuild in Hong Kong as Deal Volume Surges
Italy Considers Freezing Retirement Age at 67 to Avert Scheduled Hike
Italian City to Impose Tax on Visiting Dogs Starting in 2026
Arnault Denounces Proposed Wealth Tax as Threat to French Economy
Study Finds No Safe Level of Alcohol for Dementia Risk
Denmark Investigates Drone Incursion, Does Not Rule Out Russian Involvement
Lilly CEO Warns UK Is ‘Worst Country in Europe’ for Drug Prices, Pulls Back Investment
Nigel Farage Emerges as Central Force in British Politics with Reform UK Surge
Disney Reinstates ‘Jimmy Kimmel Live!’ after Six-Day Suspension over Charlie Kirk Comments
U.S. Prosecutors Move to Break Up Google’s Advertising Monopoly
×