Loans, credit cards: AI used by lenders to consider more than your credit history
HOUSTON - Artificial intelligence is changing the game on how we're approved for loans and credit cards.
The Consumer Financial Protection Bureau reports that more lenders are using it to evaluate a lot more information about us that is scraped from more sources across the internet.
"Data aggregation and consumer surveillance have been going on forever, in every industry unbeknownst to the average consumer. And it’s been used in underwriting for a long time. What AI is doing now is its giving us even more data," explained Paul Oster, founder of credit management firm Better Qualified.
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That's right. When you apply for a loan, a credit card, or a mortgage, many lenders are using artificial intelligence to evaluate your credit worthiness on much more data than your credit history.
The Consumer Financial Protection Bureau reports many lenders are using AI to gather what's called Alternative Data, such as your cash flow and bill paying history from things like your bank accounts, cell phone bills, rent history, and insurance claims.
The Federal Reserve Consumer Compliance Outlook reports lenders can also use AI to gather what's called Big Data or Fringe Data, often from social media platforms, like your browsing history, shopping habits, occupation, education, as well as the places you visit that are tracked by your cell phone.
"People would say why would my Facebook page have an impact on an application for a loan? Well maybe you mentioned bankruptcy a bunch of times. Maybe it's the phone tracking, location data is a big part of this. Unfortunately, maybe you were checking into an addiction clinic every morning," said Oster.
That's why the CFPB is issuing guidance to remind lenders that when AI has denied a loan application, or reduced someone's credit card limit, the Equal Credit Opportunity Act still requires the lender to inform consumers of the specific reason, so they can correct or improve the situation. This is also aimed at helping to prevent discrimination through transparency.
"The consumer has the right to know why there was a negative decision. And what were the factors that went into that? We’re not going to get that right now through AI," said Oster.
If you are denied for a loan or credit and don't receive a specific explanation, contact the lender. You can also file a complaint with the CFPB, which will contact that lender.
If you don't want so much of your data to be tracked online, you can reduce some of it by deleting your browsing history and adjusting your privacy settings on all of your platforms.