united-states regulations banking
Mathematical models for money lending and antidiscrimination laws in the US
<p>Are there any federal or state laws in the US regulating which models can banks and money lenders use to decide for/against lending money to an individual? I am interested on this topic in the context of mechanisms to avoid discrimination (for example, how do you ensure that your AI model doesn't have a variable that indirectly or directly takes into account ethnicity when making a decision).</p>

<blockquote>
<p>Are there any federal or state laws in the US regulating which models
can banks and money lenders use to decide for/against lending money to
an individual?</p>
</blockquote>
<p>There aren't really safe harbors regarding what lenders can use. There are only laws that prohibit certain practices like discrimination in lending. Everything else is permitted.</p>
<blockquote>
<p>ow do you ensure that your AI model doesn't have a variable that
indirectly or directly takes into account ethnicity when making a
decision).</p>
</blockquote>
<p>Using a &quot;black box&quot; machine learning or AI model is inherently risky legally because it isn't transparent and there is no good way to demonstrate that discriminatory effects aren't due to to discriminatory factors as opposed to neutral factors.</p>
<p>AI models tend to pick up on impermissible factors by attaching weight to factors that aren't substantively important, but are correlated strongly with impermissible factors, for example, assigning different weights to different surnames.</p>
<p>On the other hand, if you can spell out the precise formula by which your model is constructed (in a closed court proceeding if necessary to preserve trade secrets) and can demonstrate that no impermissible factors are considered, directly or indirectly, then your mathematical model is very likely to be upheld as legal and permissible.</p>
