Protecting equitable financial inclusion is a shared vision of credit unions (CUs) across the country, striving to serve all members fairly. However, unchecked unconscious biases can derail this mission, detrimentally impacting the banking landscape. These ingrained assumptions, shaped by societal norms and cultural factors, can influence decisions with major consequences. Subliminal prejudice has historically hindered fair lending practices, exacerbating financial disparities and perpetuating inequality.
The recent class-action lawsuit against the largest U.S. CU regarding allegations of fair-lending violations, as well as the Department of Justice’s efforts to combat ‘modern redlining,’ underscore the importance for CUs to carefully review their operations and ensure fair lending protocols are in place. Recognizing and addressing any unfair judgments, especially those the individual is not aware of, is essential in fostering a more inclusive financial environment.
The Role of Digital Lending
Fair lending violations occur when a lender denies credit or imposes non-standard terms based on factors unrelated to a borrower's creditworthiness (e.g., race, gender, ethnicity, sexual orientation). Digital lending serves as an emerging wave of technology poised to disrupt this cycle of unconscious bias.
Instead of relying on human judgment, digital lending platforms leverage objective data to make loan decisions, eliminating the influence of subliminal stereotypes and reducing discriminatory risks. By standardizing evaluation among all applicants, digital lending promotes a fairer and more equitable lending process.Â
Transforming the Lending Landscape
The benefits of digital lending extend beyond merely reducing the risk of bias. Although it can still occur within the data and algorithms of lending platforms, the advantages far surpass the potential pitfalls. Digital lending platforms also offer several advantages in promoting financial fairness, including transparent insights for applicants, ongoing process improvement and streamlined member experiences.
1. Greater Transparency
In contrast to traditional processes, digital lending offers members transparent information on the factors that impacted the approval or denial of their application. This information empowers members to gain a comprehensive understanding of the decision-making process, enabling them to easily identify and address any shortcomings that may have influenced their outcome.
By offering clear insights into evaluation criteria, digital lending allows CUs to provide a more informed and proactive approach to lending. Providing transparency empowers members to improve their future financial prospects and optimize their chances of success in obtaining credit.
2. Continuous Improvement
The transparency inherent in digital lending revolutionizes the way CUs manage lending operations. By leveraging advanced data analytics, CUs gain enhanced visibility into their lending data in real time, allowing their team to examine every aspect of the lending process with precision and clarity.
With this capability, CUs can identify any unfair associations that might be embedded in their algorithms. Uncovering these hidden patterns enables CUs to take proactive measures to ensure their lending practices comply with fair lending regulations and ethical principles.Â
Addressing these potential decision-making flaws is not merely a one-time fix; it can become an ongoing journey of improvement and refinement over time. Through continuous monitoring and assessments of lending processes, CUs can implement adjustments and enhancements to further mitigate biases and enhance fairness for all members.Â
3. Quick Decision Processes
Eliminating human judgment errors from the lending process not only improves financial equity but also enhances the efficiency and convenience of accessing loans for borrowers. With the integration of digital technologies, the entire lending workflow, from application to credit assessment, loan disbursement, and repayment, undergoes a powerful transformation.
Streamlining the application process and minimizing paperwork enables borrowers to complete the necessary steps in minutes, significantly reducing the time and effort required to apply. Digital lending also grants CUs the ability to deliver instant evaluations, providing members with timely feedback on their financial eligibility and rapid loan decisions, surpassing the lengthy waiting periods associated with traditional lending models.
As digital lending becomes the standard practice, CUs can leverage these advancements to elevate the lending experience, better meet the evolving needs of their members and remain competitive.
Lending for a Better Future
Digital lending isn't just a technological advancement; it represents a significant stride towards a fairer financial landscape. Unlike traditional methods where prejudice can persist hidden and unchallenged, digital lending provides transparency and data-driven insights essential for continuously identifying and addressing any potential discriminatory practices.Â
The transformative shift towards digital lending has the potential to revolutionize the borrowing landscape, enabling CUs to extend accessible credit opportunities to all deserving borrowers. By harnessing this technology, CUs can create a balanced environment where unconscious biases are minimized and access to credit is determined solely by merit rather than subjective judgments.
The CU industry must seize this opportunity to cultivate a more inclusive and fair lending system for all members, thereby fostering greater equity in financial opportunities.
About Jeff Grobaski, Founder and CEO, Epic River
Jeff Grobaski is the founder and CEO of Epic River, a lending-as-a-service platform provider that connects banks and credit unions with healthcare providers to streamline patient payments. Their unique offering allows providers to offload nonpayment risk by partnering with banks and credit unions to create low-interest patient loan agreements. As CEO, Grobaski draws on more than 20 years of experience in software development and product management.