I remember the first time I bought my first car. My dad was a car dealer, and he helped me find financing through Ford Motor Credit. They even sent me a three-year coupon book for me to tear off a payment stub each month to send in with each of my payments. (Say “coupon book” to some millennial borrowers today, and they may look at you strange.)
I was talking to my mom about her first car buying experience, and no joke, the finance person required she get the signature of her husband before she was approved. My dad said his first car purchase did not require the signature of his wife.
Those days seem so far removed that it’s almost laughable. It was clear back in 1974, two years before my birth, that the Equal Credit Opportunity Act (ECOA) was passed, “prohibiting discrimination based on race, color, religion, national origin, sex, marital status, age, source of income, or whether a person exercises rights granted under the Consumer Credit Protection Act for any credit transaction and through the life of the loan.” (American Bankers Association website)
The history of the institutions we do business with have likely been practicing these standards for much longer than ECOA existed. Most of our institutions originated out of a need to help just those people who were being discriminated against through traditional lending institutions. Regular folks who just wanted to provide a Thanksgiving dinner for their family, or a single mother needing a car to make it to her new job 30 miles from town. These were the types of people being turned down by regular banks but being helped by our institutions.
But no institution is above the law. ECOA practices are very much still enforced today. In the 2018 Fair Lending Report of the Bureau of Consumer Financial Protection, the Bureau concluded that from 2005 to 2015, American Express’s Puerto Rico credit card offers had “different, and often worse, pricing, rebates, promotional offers, underwriting, customer and account management services, and collections practices than its U.S. cards.” In response to these findings, American Express paid approximately $95 million in remediation.
Reading a finding such as that you may ask yourself: are we doing all we can to comply with ECOA standards? Are we offering people from certain areas of the country a better interest rate than people from other areas?
One tool many financial institutions use to combat against perceived unfair practices is auto-decisioning.
What is auto-decisioning?
Auto-decisioning is basically leaving the approval of loans up to a “machine” (AKA, software), rather than from a single person with unperceived (or perceived) biases. The “machine” is powered by metrics established by your institution, such as longevity of steady employment, credit score, any previous bankruptcies, and debt-to-income level. Of course, race, gender, marriage, or Zip code address are NOT part of the auto-decisioning process.
GOLDPoint Systems offers auto-decisioning tools that are second to none. Our underwriting engine is so fast that customers can be approved for loans in seconds. Our tools are easy to use and even give institutions control of changing metrics, if they find that too many loans are being rejected that should have been approved.
Of course, these “machines” will never fully replace a friendly person who is willing to listen to your heartache about needing a loan. We need George Bailey’s in the world too, of course. Just no more Old Man Potter’s, who probably was the inspiration behind needing ECOA. (Please tell me you caught my It’s a Wonderful Life reference?)