To: SECU Board of Directors
Dear Chairman Ayers,
Again, with your introduction of risk-based lending at SECU, the suspicion grows that you either have not "done your homework" on fair lending or that you have been misinformed as to the well-known limitations of credit score-based lending.
Remember that you and the SECU Board are solely responsible (since you're a lawyer, guess I should have used "liable" - right?) for authorizing the use of a credit score to hike loan rates on SECU members who, for many good reasons, are not in the "A" rated tier. The credit score companies warn you that they are not responsible (nor "liable"!) for how SECU chooses to use the credit score. That was your call. You're, as they say, on the hook!
You might gain some needed insight from the following excerpt from an artificial intelligence (AI) lending expert testifying before the US House of Representatives in 2019:
"Chairman Lynch, Ranking Member Hill, and Members of the Task Force on Financial Technology, thank you for the opportunity to participate in today’s conversation.
My name is Dave Girouard, co-founder and CEO of Upstart, which is a leading artificial intelligence (“AI”) lending platform. I founded Upstart more than 7 years ago in order to improve access to affordable credit. In the last five years, almost $4 billion in bank-quality consumer loans have been originated on our platform using a model that combines alternative data with AI and machine learning algorithms to determine a borrower’s creditworthiness.In our early days at Upstart, we conducted a retroactive study with a large credit bureau and uncovered a jarring pair of statistics: just 45% of Americans have access to bank-quality credit, yet 83% of Americans have never actually defaulted on a loan. That’s not what we would call fair lending.
The FICO score was introduced in 1989 and has since become the default way banks judge a loan applicant. But in reality, FICO is extremely limited in its ability to predict credit performance because it’s narrow in scope and inherently backward looking.
At Upstart, we decided to use modern technology and data science to find more ways to prove that consumers are indeed creditworthy – to bridge that “45% versus 83%” gap. We believe that consumers are more than their credit scores. And by going beyond the FICO score, and including a wide variety of other information such as a consumer’s employment history and educational background, we’ve built a significantly more accurate credit model."
SECU has been bridging that "45% versus 83% quality credit gap on behalf of SECU members for over 85 years. Yes, SECU has long used credit reports, credit scores, and other "artificial intelligence" tools in making lending decisions, but added to that with a secret sauce - human intelligence! Local, community lenders and decision makers - real people! And, then just to make sure, local loan review committees - member volunteers assuring fairness for all members.
Mr. Ayers, you and the SECU Board have taken a step back in time and in fairness with your new, member-punitive risk-based lending scheme. It's liable to cause you a problem...