In message Tue, 1 Nov 1994 19:54:30 -0500,
"GARY DYMSKI" <[EMAIL PROTECTED]> writes:
> In message 27 Oct 1994 12:31:38 -0700,
> pat mason <[EMAIL PROTECTED]> writes:
> Credit scoring is simply one of many possible methods of assessing
> creditworthiness.
As a practical matter, credit scoring is most often used by larger
institutions for smaller credit, say credit cards offered by a national
credit card bank.
However, I have heard the idea being brought out as a way to justify
charging higher rates for an institution planning to expand into
low income communities.
> What would make
> any creditworthiness assessment technique illegal is this: if it involves
> using any of the protected categories under the US's anti-discrimination
> laws. By and large, this refers to the amendments to the Constitution
> that have determined that due process protects people from being singled
> out on the basis of (cet. par) race, gender, and age. That is, it is
> illegal to give people a "score" using this category.
In my understanding it is also illegal to give people a score that results
in "disparate treatment", that is if the resulting lending patterns show
bias even if the scoring method does not directly. The representation of
this approach is "redlining" in which an area is "redlined" because of
perceived risk.
> This Guttentag/Wachter
> article was the first to thus indicate the possibility of what these
> authors termed "rational discrimination".
A large bank in the DC area recently settled out of court in a case
involving their lending patterns in the suburbs vs the City. The settlement
required the bank to open branches and agree to provide services in the
"redlined" area. While the discrimination as the bank practiced it may have
been rational, this rational (but illegal) policy had bottom line
consequences.
> No bank would admit to using this, because of the illegality involved. So
> no banking text would discuss it either. Does it happen?
HMDA data indicates quite strongly that discrimination is a part of the
banking marketplace. Why shouldn't any community expect to have their bank
reinvest in the community?
A recent study by the Woodstock Institute of Chicago indicates that
the perceived default risk of mortgage lending in low income communities
does not represent a real risk. Lenders to low income housing have as
good a record as lenders to the middle class and a better record that
lenders to non-owner occupied units.
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William Myers
Alternatives Federal Credit Union
301 West State Street, Ithaca, NY 14850-5431
(607) 273-3582 ext 817, FAX 277-6391
[EMAIL PROTECTED]
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