Federal: Comment Letter to HUD on Reinstatement of HUD’s Discriminatory Effects Standard

August 24, 2021

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Regulations Division, Office of General Counsel
Department of Housing and Urban Development
451 7th Street SW, Room 10276
Washington, DC 20410

RE: Response to Request for Comments on Reinstatement of HUD's Discriminatory Effects Standard, Docket No. FR-6251-P-01

Office of General Counsel:

The American Fintech Council (AFC), in consultation with members of its Community Advisory Board (CAB), writes to endorse the reinstatement of the Discriminatory Effects Standard as proposed in Reinstating the Department of Housing and Urban Development’s (HUD) Discriminatory Effects Standard, issued in the June 25, 2021, Federal Register (Docket No. FR-6251-P-01).

AFC’s mission is to promote an innovative, transparent, inclusive, and customer-centric financial system. AFC’s CAB provides advice and recommendations to AFC to help it execute on its mission. To that end, the AFC supports a disparate impact framework in fair lending regulation and in the implementation of the Fair Housing Act (FHA).

Disparate impact analysis protects borrowers and promotes innovation. Statistically driven, outcomes-based regulations allow providers to check their own work, enabling them to expand access to credit at lower prices using emerging technologies and data sources. While not the subject of this rulemaking, it is important to note that the AFC also supports the use of disparate impact analysis for the Consumer Financial Protection Bureau’s (CFPB) enforcement of the Equal Credit Opportunity Act (ECOA). As Artificial Intelligence (AI), machine learning, and alternative data sources become more common in financial services and have the potential to increase the inclusiveness and affordability of financial products, the regulatory system must also ensure that these technologies do not result in digital discrimination. The disparate impact framework can provide this protection. By stabilizing the disparate impact framework, and clarifying its application to AI, HUD and other regulators can both protect consumers from discrimination and provide companies the regulatory stability to invest further in innovations that can produce pro-consumer outcomes.

A disparate impact approach requires that all responsible lenders and lending platforms – such as many of AFC’s members – regularly test and evaluate the outcomes of their lending operations for potential discrimination. If providers find that a technique is predictive of default but can lead to a disparate impact on a protected class of persons (race, ethnicity, age, gender, sexual identity, etc.) they must seek to utilize a different method. The presence of disparate impact analysis helps identify and remediate potential digital redlining.

We applaud Secretary Fudge’s decision to reinstate the use of disparate impact analysis and stand ready to do our part in creating a more fair and equitable financial system.

Sincerely,

Garry Reeder
Chief Executive Officer
American Fintech Council

Cornelius K. Hurley
Chairman
American Fintech Council’s Community Advisory Board