Main | Our Biases Often Are Clearer to Others Than to Us »

October 31, 2007

Comments

Lance

I am all in favor of revealing biases where they exist, but in the example above there is too little information to jump to a conclusion of bias.

A credit score is not the only financial factor involved in obtaining a loan, and is not the only financial factor involved in determining the loan rate.

You might argue that the measures themselves happen to disfavor a large percentage of African-Americans, but I would challenge you to prove that a white with the exact same measures (all of the measures, not just one like credit rating) receives a better loan rate.

There have been times when I have been offered a high rate due to my own measures being lacking.

I can believe that the measures disfavor African-Americans, but to suggest that measures are being selected that purposefully disfavor African-Americans is to suggest a conspiracy of impossible proportions.

If I correctly understand the points made above, the article is saying that African-Americans were more likely to default on their loans *and* more likely to receive a higher loan rate. A higher loan rate is a mirror reflection of the perceived risk. The higher default rate shows that there was a correctly perceived higher risk, and thus a higher rate was justified.

It may seem like circular reasoning, but it isn't. The higher loan rates did not cause the defaults. What the risk-rate relationship is, rather, is: (1) A very logical motivation to maintain one's finances in good order so as to earn a lower rate, and (2) A very logical demotivation from seeking a loan when one's own fiscal history reveals that doing so is unwise.

I've been there.

Linda

Lance:

Thanks for raising this point. I am sure many people are wondering the same thing. I always learn something new from your challenges.

Problem is we can't prove discrimination occured but we can't rule it out either. That is the problem with bias - it is harder to document that prejudice or racism.

A Oct 17th editorial in the New York Times titled "Subprime in Black and White" concluded:

"But the burden of proof has to be on the lenders to show that no discrimination has occurred. They have data on the risk characteristics of their borrowers. When the Federal Reserve began in 2004 to require lenders to provide specific data on subprime loans, the industry fought successfully to keep the risk profile of borrowers, including credit scores, under wraps. Now, with indications of discrimination rife, Congress must demand that data be fully disclosed.

The crisis in subprime lending is already threatening to be a socioeconomic disaster with hundreds of thousands of Americans at risk of losing their homes. Whether there has also been widespread racial discrimination by lenders is a question that lawmakers must confront fully, without delay."


I concurr. There is sufficient cause for alarm here. If we don't do the research and find out whether discrimination was involved, we may end up right back in the same place again.

Here is a link to the Times article:
http://www.nytimes.com/2007/10/17/opinion/17wed2.html

Hawi Moore

Great post

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