DC: Comment Letter on DC’s Stop Discrimination by Algorithm Act of 2021 (B24-0558)

Council of the District of Columbia
Committee on Government Operations and Facilities
The John A. Wilson Building
1350 Pennsylvania Avenue, NW
Washington, DC 20004

Re: B24-0558, Stop Discrimination by Algorithm Act of 2021

Dear Chairman Mendelson and Chairman White:

We are writing to provide feedback on B24-0558, the Stop Discrimination by Algorithms Act. Despite concerns about various provisions in the bill and the increased complexity inherent in differing state-by-state approaches, we want to work with the Committee on how best to address concerns about bias and transparency around algorithmic decision-making by financial institutions. The AFC’s mission is to promote an innovative, transparent, inclusive, and customer-centric financial system by supporting the responsible growth of lending, fostering innovation in financial technology (fintech), and encouraging sound public policy. AFC has supported the reinstatement of HUD’s Discriminatory Effects standard, for example, and several member companies joined with consumer advocates to urge the CFPB to update disparate impact guidance around artificial intelligence and predictive modeling in financial services.

As the Committee considers legislation, we would like to respond to the Chair’s request by offering some initial and high-level recommendations:

• Findings and Declarations of Policy (Sec. 2). We urge the committee to also include some provisions on the benefits of algorithmic decision-making and to acknowledge the balancing that DC policymakers must undertake as they regulate automated decision-making - a balance that seeks to harness its benefits, encourage technological innovation and facilitate competition and consumer choice. In financial services for example, research has found fintech instrumental in providing emergency COVID-19 relief to small and minority business enterprises, as key to reaching “invisible prime” consumers; and, fintech partnerships, as ensuring community banks and smaller financial institutions remain competitive, vibrant and thus independent. The White House Blueprint for an AI Bill of Rights this week is the latest in the long line to also extol the “extraordinary benefits” of automated systems.
• Definitions (Sec. 3), Prohibited Practices (Sec. 4), Right to notice and disclosure (Sec. 6). Many of the provisions contemplated by these sections of B24-0558 are also the subject of multi-stakeholder efforts underway nationally to establish common standards. Several federal regulators are also working to clarify any gaps around the treatment of artificial intelligence and machine learning models. For example, the Equal Credit Opportunity Act (ECOA) and Regulation B require creditors to provide statements of specific reasons to applicants against whom adverse action is taken. The Consumer Financial Protection Circular 2022-03 has clarified recently that these provisions apply regardless of the technology used to make them. The White House AI Bill of Rights also likely covers unjustified algorithmic discrimination by a broader set of automated systems, whereas B24-0558 appears to make a distinction between automated systems derived from machine learning and artificial intelligence and those that rely on other analytical techniques. Coordination and robust information-sharing between federal and state policymakers might produce the best and most seamless industry standards and expectations, ensure consumer choice, and facilitate financial inclusion and competition.
• Auditing for Discriminatory Processing and Reporting Requirement (Sec. 7), Enforcement (Sec. 8). Independent evaluation of algorithmic decision-making is certainly a key policy priority. At least one financial institution has pioneered a partnership with civil rights and consumer advocates to deploy independent fair lending monitoring. It is critical for policymakers to appreciate the complexity of these assessments, however, and that research continues to produce critical insights about the appropriate diagnostic tools for specific use cases and how companies can properly interpret the results from these tools to respond to adverse action and anti-discrimination requirements. There are a number of existing federal and state public and private remedies and we are concerned that additional severe enforcement provisions that do not appreciate the complexity of these assessments will stymie financial innovation and the broader adoption of technologies in DC - technologies that can expand the availability, accessibility and affordability of credit, for example.

We want to work with the Committee to ensure that any legislation enacted achieves a balance: that promotes fairer and more transparent use and understanding about automated decision-making, consistent with uniform national standard setting and federal amendments to existing regulatory frameworks; but that also achieves the Council’s other objectives around greater financial inclusion.

COVID-19 magnified the challenge of ensuring the availability of high-quality financial services and products to LMI borrowers and communities. Banking deserts and underserved census tracts are proliferating and in thousands of communities across the country bank branches closed at record rates during the crisis.9 An analysis of majority Black and LatinX communities found low levels of bank concentration as measured by the Herfindahl-Hirschman Index, relative to their majority white counterparts.10 We believe financial technology has the tremendous potential to help newer and traditional financial institutions bridge gaps in the financial marketplace to underserved people and places.

We urge federal and state policymakers to coordinate, share information and develop uniform standards that encourage innovation, harness the benefits of financial technology but also ensures it is fair and transparent. If you should have any further questions, then please do not hesitate to contact me at gerron@fintechcouncil.org or 301-801- 6121.

Sincerely,

/s/Gerron S. Levi

Cc: Members of the Committee of Government Operations and Facilities and the D.C. Council