The business case for even fairer lending

John Lyly’s “Euphues: The Anatomy of Wit” notes, “The rules of fair play do not apply in love and war,” paving the way for a common phrase we hear today.

However, when it comes to business practices, fairness matters. After all, the phrase isn’t, “All’s fair in love, war, and business."

What’s the business case for finding solutions for even fairer lending? If automating compliance efforts, expanding the member lending pool, and reaching new demographics doesn’t intrigue you, the fact that it’s the right thing to do should do the trick.

Automate compliance

Explaining lending decisions and ensuring fairness is a meticulous, highly detailed, and strenuous process for every lender. With CFPB’s position on compliance and technology [PDF], it’s crucial to find trustworthy technology for compliance automation. I can assure you that transparent and compliant technology does exist.

When it comes to smaller credit unions, where a compliance department might not exist, technology that enables and explains fair lending decisions is invaluable. For credit unions with a compliance department, this resource efficiency gain makes their lives that much easier when regulators come around.

Expand your lending pool

Fairer lending lets you serve more members. How? Artificial intelligence (AI) technology focused on fairer lending gives you higher accuracy in risk prediction. This, in turn, lets you lend further down the credit spectrum.

Many of the declines your credit union would give out based on traditional credit scores probably don’t belong in the “no” pile.

With fair lending-focused AI, credit unions can see a 20%-25% increase in approvals without adding risk.

When we look at approval increases for protected classes, we see a 40% average increase. By extending your pool of approvals, you can reach more members and produce more yield to support your business.

Reach new demographics

A 2021 global trends report found that 66% of U.S. consumers tend to buy from brands that reflect their values, and studies show that millennials and Generation Z seek out organizations that align with their position on societal issues.

With Gen Z representing only 4% of credit union members and the average age of members today at somewhere around 53, credit unions need to attract younger generations.

Technology is an essential part of the equation to help credit unions compete with other lenders. Meeting millennial and Gen Z’s desire for a moral match with whom they do business can put you ahead of the competition.

Finding a way to perform even fairer lending is a great business opportunity, but it’s also just the right thing to do. As a credit union, you know your members and their stories, and you want to build up your community around you.

It’s not enough to meet the expectations of fair lending regulations. When it comes to even more equitable lending practices, credit unions should go above and beyond, as they do in every other piece of their business.

MIKE DE VERE is CEO at Zest AI, a CSSUNA Strategic Services alliance provider.