5 ms·

Here's the main study cited in the article: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3301009 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3301

Here's the main study cited in the article: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3301009 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3301009 "We find that the same minority applicants who faced lower approval rates on auto loans do not face lower approval rates on credit cards, even during the same year. This finding suggests that the human element of auto lending, rather than differences in hard information, leads to the lower approval rates for minorities."

deleted 8y ago
[deleted]
mhuffman 8y ago
This insinuates that car lenders are racist. I am truly curious of what the business model of denying minorities a car loan is? I mean, long ago, I guess I can at least process the ugly mindset of "we don't want 'them' as our neighbor", but I can not come up with any logical or illogical reasonable reason why a business person would intentionally lower their income just to be racist. Literally no one would know that you made a loan to a minority, so that can't be it. Is the insinuation that the loan officer might "get a feeling" that a person might not repay a loan based on the race? If that were the case, at least in the financial sector, it would seem that another financing institution would have noticed this inefficiency long before 2019 and gobbled up all of that free money on the table. I also wonder if the higher interest rates of credit cards accounts for higher approval rates.
- crooked-v 8y ago
  > I am truly curious of what the business model of denying minorities a car loan is? Why does it have to be a business model? Humans are not rational actors. The segregation era almost certainly lost tremendous amounts of money for retail businesses as a whole, but their management still went along with it. The remaining implicit bias in many businesses still loses tremendous amounts of money for retail businesses as a whole (see the various "wealthy black celebrity treated like a shoplifter" news stories, for example), but people still do it.
  - mhuffman 8y ago
    > Why does it have to be a business model? Humans are not rational actors. True! I guess my real point was why no arbitrageurs eating the free money up? > The segregation era almost certainly lost tremendous amounts of money for retail businesses as a whole, but their management still went along with it. I don't think I agree with that. If the larger society was racist and would not go to a business that was segregated, then the business owner made a "rational" business decision to keep the wealthier customers ... at least that could be true. > The remaining implicit bias in many businesses still loses tremendous amounts of money for retail businesses as a whole (see the various "wealthy black celebrity treated like a shoplifter" news stories, for example), but people still do it. I have seen some of those anecdotal stories, but it remains that there certainly are (and have been) other businesses very happy to take money from "wealthy black celebrity" customers. I get your angle, but it still seems like something is missing, especially now in non-segregated times.
    - toufiqbarhamov 8y ago
      If you’d been neglected and abused for your whole childhood, then finally managed to run away and escape, you’d be out of your bad situation right? How long do you think it would take for you to catch up to the adults who weren’t raised that way? Evidence suggests that you never would, unless you were so gifted that you could compensate for your past. Most people won’t be that gifted, and won’t thrive. What I’m saying is that the missing ingredient is context. The market is a competition in many ways, and black people only got the chance to compete on a nominally fair playing field over the last few decades. Remember the Tuskeegee syphilis experiment only ended in 1972. Rodney king was nearly beaten to death in 1991. Families that were impoverished, segregated, and denied an education and voting rights take time to recover. A history of aggressive policing of the “war on drugs” hasn’t helped either. So at what point does it occur to you that the missing ingredient is history that only people like you and me get to forget?
      - mhuffman 8y ago
        I get all of that, but it in no way explains the question that I asked. How do the terrible atrocities of the past cause auto lenders of today to deny minorities loans based on racism alone and not business sense? That is my question and that is what this post is about. TFA has evidence that people are going out of their way now to deny car loans to people that would otherwise be eligible for those loans except for their race. I am not doubting that this is happening, I am trying to determine why it would be and how no start-up has recognized the "market inefficiency" and opened a "we specialize in loans to black and hispanic people" and made billions and billions of free dollars currently being neglected.
- jlarocco 8y ago
  > If that were the case, at least in the financial sector, it would seem that another financing institution would have noticed this inefficiency long before 2019 and gobbled up all of that free money on the table. Of course. They'll just only hire people who aren't subconsciously biased. No problem. They'll just put "No racists please," in their job advertisements. Simple as that. LOL!
  - mhuffman 8y ago
    ... or just set up a fully automated system that specializes in offering these underserviced loans ...
- michaelchisari 8y ago
  You're assuming rationality.
- skywhopper 8y ago
  You seem to assume racism is always an active choice, rather than largely (these days) a set of systemically biased policies as well as implicit and often unconscious prejudice. It's also not all about rejecting loans. Rather, it's that the terms offered are different for every buyer, and the groups that are being discriminated against are charged higher rates, and thus pay more, for the same product. There's plenty of data out there proving that, for whatever reason, African American loan applicants with identical credit scores and income are routinely charged higher interest rates for auto and home loans than their white counterparts. The next question to ask is "why?" but we can't pretend the effect doesn't exist.
lkdjjdjjjdskjd 8y ago
How do auto loans and credit card approvals differ? Surely both have some human element to it still? Maybe the sums involved are different, so giving loans is more risky than approving credit cards? Also, incentives might be different. Maybe credit card companies want "bad" borrowers, because they make the most money if people go into high debts on credit cards? On the other hand for normal loans there is no such incentive, because the interest rates are fixed and much lower.
- clairity 8y ago
  most people get auto loans st the dealership with a salesperson (the human element), but get credit cards via online or paper forms (no human involved).
  - lkdjjdjjjdskjd 8y ago
    So an "auto loan" is a "car loan"? I thought it was an automatically created loan. Thanks for clarifying.
    - toast0 8y ago
      It's an automobile loan; car, truck, van, whatever. (Often not a motorocycle or watercraft)
- bluedino 8y ago
  Car loans are secured (the bank owns the car). If you buy stuff on a credit card, you own the stuff
sologoub 8y ago
This is where things get complex with ML. Any dimension that is correlated with the protected categories can potentially get you into a biased and discriminatory outcome. Because embedding are not necessarily transparent, it’s hard to evaluate what the model attaches to. The most accessible example is anything to do with fine grained location, such as zip+4. Because people tend to cluster, zip+4 has been identified as a close proxy for race and other protected classes. When we are talking ML-derived decisions and the nuanced approach, we have to be cognizant of the fact that certain repayment patterns and behaviors could also be strongly correlated to a protected class.
- darawk 8y ago
  What if the correct predictor really is the zip code, though? Let's say there's a city that's predominantly black, and it has a statistically significantly higher default rate than other cities. However, the default rate in that city is high for residents of all races who live there. In this scenario, the 'true' predictor really is the city, but it also correlated with race. Is simple correlation to a protected class sufficient to nix a variable?
  - sologoub 8y ago
    The protected classes are not protected because the data is somehow statistically not significant or cannot be a predictor. The classes are protected because as a society, we have decided that greater social good is achieved by sacrificing these predictors. The question is then what is it that you are after with this prediction? Max profit or max social good with enough profit.
    - darawk 8y ago
      My point is that lots of things correlate with race. Almost any conceivable variable you could devise to predict loan defaults correlates with race. Gender and age are maybe the only two things I can think of that almost certainly don't correlate with race (although African Americans do tend to die earlier so...age might be out). Given that, what standard can you realistically use here?
skywhopper 8y ago
I'm not seeing any evidence that the ML approach doesn't have the same or similar biases. I'm sure the results are different but we can't say they're better just because a computer generates them. In fact, we've seen many times that ML may often tend to give implicit biases even more emphasis, because in an attempt to create "objective" measures against which to judge a dataset, ML creators inject their own biases, or rely on data which is itself biased in its collection or categorization. (So, for example, if zip code is a major indicator in the ultimate ML algorithm, it may be completely "objective", while still reinforcing biases against minority applicants, simply because of how wildly self-segregated many US cities are, or because of self-reinforcing effects of systemic bias in other, human-controlled parts of the economy.)
hakfoo 8y ago
Geography may be a factor. You might reasonably apply by mail for a credit card from an out-of-state bank, but a lot of auto lending revolves around a purchase made in a nearby dealer. If the dealers in minority-dominant communities tend to be more aggressive about lending qualifications, that could explain it all neatly. Though, my blind guess would be that you'd see more "buy-here/pay-here" and "no-credit-required-but-the-loan-is-at-34-percent-interest" dealers in minority neighbourhoods (skewing poorer), so approval rates would likely be at par or higher. Or are they qualifying "approval rates" with "at sane market prices?"

deleted 8y ago

[deleted]

mhuffman 8y ago

This insinuates that car lenders are racist. I am truly curious of what the business model of denying minorities a car loan is? I mean, long ago, I guess I can at least process the ugly mindset of "we don't want 'them' as our neighbor", but I can not come up with any logical or illogical reasonable reason why a business person would intentionally lower their income just to be racist. Literally no one would know that you made a loan to a minority, so that can't be it. Is the insinuation that the loan officer might "get a feeling" that a person might not repay a loan based on the race? If that were the case, at least in the financial sector, it would seem that another financing institution would have noticed this inefficiency long before 2019 and gobbled up all of that free money on the table. I also wonder if the higher interest rates of credit cards accounts for higher approval rates.

crooked-v 8y ago
> I am truly curious of what the business model of denying minorities a car loan is? Why does it have to be a business model? Humans are not rational actors. The segregation era almost certainly lost tremendous amounts of money for retail businesses as a whole, but their management still went along with it. The remaining implicit bias in many businesses still loses tremendous amounts of money for retail businesses as a whole (see the various "wealthy black celebrity treated like a shoplifter" news stories, for example), but people still do it.
- mhuffman 8y ago
  > Why does it have to be a business model? Humans are not rational actors. True! I guess my real point was why no arbitrageurs eating the free money up? > The segregation era almost certainly lost tremendous amounts of money for retail businesses as a whole, but their management still went along with it. I don't think I agree with that. If the larger society was racist and would not go to a business that was segregated, then the business owner made a "rational" business decision to keep the wealthier customers ... at least that could be true. > The remaining implicit bias in many businesses still loses tremendous amounts of money for retail businesses as a whole (see the various "wealthy black celebrity treated like a shoplifter" news stories, for example), but people still do it. I have seen some of those anecdotal stories, but it remains that there certainly are (and have been) other businesses very happy to take money from "wealthy black celebrity" customers. I get your angle, but it still seems like something is missing, especially now in non-segregated times.
  - toufiqbarhamov 8y ago
    If you’d been neglected and abused for your whole childhood, then finally managed to run away and escape, you’d be out of your bad situation right? How long do you think it would take for you to catch up to the adults who weren’t raised that way? Evidence suggests that you never would, unless you were so gifted that you could compensate for your past. Most people won’t be that gifted, and won’t thrive. What I’m saying is that the missing ingredient is context. The market is a competition in many ways, and black people only got the chance to compete on a nominally fair playing field over the last few decades. Remember the Tuskeegee syphilis experiment only ended in 1972. Rodney king was nearly beaten to death in 1991. Families that were impoverished, segregated, and denied an education and voting rights take time to recover. A history of aggressive policing of the “war on drugs” hasn’t helped either. So at what point does it occur to you that the missing ingredient is history that only people like you and me get to forget?
    - mhuffman 8y ago
      I get all of that, but it in no way explains the question that I asked. How do the terrible atrocities of the past cause auto lenders of today to deny minorities loans based on racism alone and not business sense? That is my question and that is what this post is about. TFA has evidence that people are going out of their way now to deny car loans to people that would otherwise be eligible for those loans except for their race. I am not doubting that this is happening, I am trying to determine why it would be and how no start-up has recognized the "market inefficiency" and opened a "we specialize in loans to black and hispanic people" and made billions and billions of free dollars currently being neglected.
jlarocco 8y ago
> If that were the case, at least in the financial sector, it would seem that another financing institution would have noticed this inefficiency long before 2019 and gobbled up all of that free money on the table. Of course. They'll just only hire people who aren't subconsciously biased. No problem. They'll just put "No racists please," in their job advertisements. Simple as that. LOL!
- mhuffman 8y ago
  ... or just set up a fully automated system that specializes in offering these underserviced loans ...
michaelchisari 8y ago
You're assuming rationality.
skywhopper 8y ago
You seem to assume racism is always an active choice, rather than largely (these days) a set of systemically biased policies as well as implicit and often unconscious prejudice. It's also not all about rejecting loans. Rather, it's that the terms offered are different for every buyer, and the groups that are being discriminated against are charged higher rates, and thus pay more, for the same product. There's plenty of data out there proving that, for whatever reason, African American loan applicants with identical credit scores and income are routinely charged higher interest rates for auto and home loans than their white counterparts. The next question to ask is "why?" but we can't pretend the effect doesn't exist.

lkdjjdjjjdskjd 8y ago

How do auto loans and credit card approvals differ? Surely both have some human element to it still? Maybe the sums involved are different, so giving loans is more risky than approving credit cards? Also, incentives might be different. Maybe credit card companies want "bad" borrowers, because they make the most money if people go into high debts on credit cards? On the other hand for normal loans there is no such incentive, because the interest rates are fixed and much lower.

clairity 8y ago
most people get auto loans st the dealership with a salesperson (the human element), but get credit cards via online or paper forms (no human involved).
- lkdjjdjjjdskjd 8y ago
  So an "auto loan" is a "car loan"? I thought it was an automatically created loan. Thanks for clarifying.
  - toast0 8y ago
    It's an automobile loan; car, truck, van, whatever. (Often not a motorocycle or watercraft)
bluedino 8y ago
Car loans are secured (the bank owns the car). If you buy stuff on a credit card, you own the stuff

sologoub 8y ago

This is where things get complex with ML. Any dimension that is correlated with the protected categories can potentially get you into a biased and discriminatory outcome. Because embedding are not necessarily transparent, it’s hard to evaluate what the model attaches to. The most accessible example is anything to do with fine grained location, such as zip+4. Because people tend to cluster, zip+4 has been identified as a close proxy for race and other protected classes. When we are talking ML-derived decisions and the nuanced approach, we have to be cognizant of the fact that certain repayment patterns and behaviors could also be strongly correlated to a protected class.

darawk 8y ago
What if the correct predictor really is the zip code, though? Let's say there's a city that's predominantly black, and it has a statistically significantly higher default rate than other cities. However, the default rate in that city is high for residents of all races who live there. In this scenario, the 'true' predictor really is the city, but it also correlated with race. Is simple correlation to a protected class sufficient to nix a variable?
- sologoub 8y ago
  The protected classes are not protected because the data is somehow statistically not significant or cannot be a predictor. The classes are protected because as a society, we have decided that greater social good is achieved by sacrificing these predictors. The question is then what is it that you are after with this prediction? Max profit or max social good with enough profit.
  - darawk 8y ago
    My point is that lots of things correlate with race. Almost any conceivable variable you could devise to predict loan defaults correlates with race. Gender and age are maybe the only two things I can think of that almost certainly don't correlate with race (although African Americans do tend to die earlier so...age might be out). Given that, what standard can you realistically use here?

skywhopper 8y ago

I'm not seeing any evidence that the ML approach doesn't have the same or similar biases. I'm sure the results are different but we can't say they're better just because a computer generates them. In fact, we've seen many times that ML may often tend to give implicit biases even more emphasis, because in an attempt to create "objective" measures against which to judge a dataset, ML creators inject their own biases, or rely on data which is itself biased in its collection or categorization. (So, for example, if zip code is a major indicator in the ultimate ML algorithm, it may be completely "objective", while still reinforcing biases against minority applicants, simply because of how wildly self-segregated many US cities are, or because of self-reinforcing effects of systemic bias in other, human-controlled parts of the economy.)

hakfoo 8y ago

Geography may be a factor. You might reasonably apply by mail for a credit card from an out-of-state bank, but a lot of auto lending revolves around a purchase made in a nearby dealer. If the dealers in minority-dominant communities tend to be more aggressive about lending qualifications, that could explain it all neatly. Though, my blind guess would be that you'd see more "buy-here/pay-here" and "no-credit-required-but-the-loan-is-at-34-percent-interest" dealers in minority neighbourhoods (skewing poorer), so approval rates would likely be at par or higher. Or are they qualifying "approval rates" with "at sane market prices?"