Senators Say Companies’ Use of Educational Data in Underwriting Raises Risk of Discrimination Against Minority and Women Borrowers
United States Senators Sherrod Brown (D-Ohio), Ranking Member of the U.S. Senate Committee on Banking, Housing, and Urban Affairs, and Elizabeth Warren (D-Mass.) Ranking Member of the Senate Committee on Banking, Housing, and Urban Affairs’ Subcommittee on Consumer Protection and Financial Institutions, and Kamala D. Harris (D-Calif.) sent a letter to Consumer Financial Protection Bureau (CFPB) Director Kathy Kraninger urging the agency to take immediate actions to address potential violations of the Equal Credit Opportunity Act (ECOA) by lenders who use educational data to make credit decisions.
“We renew our call for you to reverse your and Mr. Mulvaney’s decision to strip the CFPB’s Office of Fair Lending of its supervisory and enforcement duties. When Congress created the CFPB, we specifically charged the Director with creating an Office Of Fair Lending to “provid[e] oversight and enforcement” of Federal fair lending laws and required this Office to submit an annual report to Congress detailing the CFPB’s efforts to “fulfill its fair lending mandate.” The findings of our review highlight how important it is that the CFPB have a dedicated office with the necessary resources and expertise to rooting out redlining and other forms of illegal discrimination,” wrote the lawmakers.
In addition, the Senators provided the CFPB with the results of their review of five lenders (Climb Credit, College Ave., Earnest, Social Finance Inc., and Upstart Network, Inc.) and one credit scoring company Measure One’s use of educational data to make credit determinations. The Senators’ review identified certain uses of non-individualized educational data to assess credit that may discriminate against minority and women borrowers. The Senators called on the CFPB to closely scrutinize these and other uses of educational data that may violate fair lending laws, as well as ensure that lenders have adequate systems in place to ensure they are complying with fair lending laws. The Senators also called on the CFPB to cease issuing “No Action” letters relating to ECOA and make full use of its statutory authority to enforce fair lending laws.
Previously, Senators Brown, Warren, and Harris joined their colleagues in pressing lenders for answers following a report from the nonprofit Student Borrower Protection Center that some lenders may be charging higher interest rates to students who graduated from Historically Black Colleges and Universities and Hispanic-Serving Institutions.
A copy of the letter can be found here and below:
The Honorable Kathleen Kraninger
Consumer Financial Protection Bureau
Dear Director Kraninger:
We are writing to request that the Consumer Financial Protection Bureau (CFPB or Bureau) take immediate action—including issuing guidance, conducting supervisory examinations, and, as appropriate, opening enforcement investigations—to address potential violations of the Equal Credit Opportunity Act (ECOA) and Regulation B due to lenders’ use of educational data to make credit decisions.
In February 2020, we requested information from six companies regarding their use of educational data in making credit determinations. Five of the respondents are lenders—Upstart Network, Inc. (Upstart), Climb Credit, College Ave., Earnest, and Social Finance Inc. (SoFi)—and one respondent, Measure One, is a company that offers its proprietary credit scoring model to lenders or credits to make credit determinations. We are attaching to this letter a review that details our findings, recommendations, and the responses from each of the six companies.
As discussed in greater detail in the attached review, we identified two underwriting practices that create significant risk of unlawful discrimination in violation of federal fair lending laws. First, one of the respondents (Upstart) considers the school an applicant attended to determine creditworthiness. This is the same type of practice that the CFPB and other federal regulators have found can result in discrimination against minority borrowers. Second, a different respondent (Climb Credit) uses the applicant’s anticipated income for their major or program to determine creditworthiness. Several studies have found that this practice can result in discrimination against minority as well as women borrowers.
While the CFPB should encourage financial institutions to increase access to financial services—particularly for the nonbanked or underbanked—the use of non-individualized data raises fair lending concerns. The risk of discrimination arises because the lender is not evaluating the applicant based on their own characteristics, but instead based on the characteristics of other students at their school or who were in the same major or program.
In addition, our review found significant differences in the programs the respondents have in place to ensure compliance with fair lending laws. For example, one respondent indicated that it did not conduct any testing to determine whether its underwriting practices have a disparate impact on applicants based on a protected class. Without an adequate fair lending compliance program in place—including written policies and procedures, training, and testing—companies are at increased risk of engaging in discriminatory lending practices and violating fair lending laws.
The attached review includes specific recommendations for action the CFPB should take to address each of these three fair lending risk areas. In particular, we want to highlight our recommendation that the CFPB should not issue “No Action” letters related to ECOA to any lender or company. We are highly skeptical that the CFPB should provide such prospective immunity from consumer protection laws to any company—and even more so under ECOA, where Black and brown borrowers unwillingly serve as the test subjects.
Finally, we renew our call for you to reverse your and Mr. Mulvaney’s decision to strip the CFPB’s Office of Fair Lending of its supervisory and enforcement duties. When Congress created the CFPB, we specifically charged the Director with creating an Office Of Fair Lending to “provid[e] oversight and enforcement” of Federal fair lending laws and required this Office to submit an annual report to Congress detailing the CFPB’s efforts to “fulfill its fair lending mandate.” The findings of our review highlight how important it is that the CFPB have a dedicated office with the necessary resources and expertise to rooting out redlining and other forms of illegal discrimination.
Thank you in advance for your attention to the issues we have raised in this letter and in the attached review.
 12 U.S.C. § 5493(c).
 See CFPB Report: Private Student Loans (Aug. 29, 2012) at 79-80 (assessing an applicant’s creditworthiness based on the cohort default rate (CDR) of the applicant’s school may have a disparate impact on minority borrowers), available at
https://files.consumerfinance.gov/f/201207_cfpb_Reports_Private-Student-Loans.pdf; In re Sallie Mae Bank, Consent Order, No. FDIC-13-0366b, FDIC-13-0367k (filed May 13, 2014) (FDIC found that use of CDR in credit-scoring model violated ECOA), available at https://www.fdic.gov/news/news/press/2014/salliemae.pdf.
 See, e.g., See Dowse B. Rustin IV, Neil E. Grayson, Kiersty M. Degroote, Pricing Without Discrimination, Alternative Student Loan Pricing, Income Share Agreements, and the Equal Credit Opportunity Act, AEI (Feb. 2017), available at https://www.aei.org/wp-content/uploads/2017/02/Pricing-Without-Discrimination.pdf; see also Jonathan D. Glater. Law School, Debt, and Discrimination. Journal of Legal Education, Volume 68, Number 3. Spring 2019. https://jle.aals.org/cgi/viewcontent.cgi?article=1632&context=home; Jen Mishory. Private ISA Student Loans Highlight Consumer Protection Challenges. The Century Foundation. (Aug. 22, 2019), available at https://tcf.org/content/commentary/private-isa-student-loans-highlight-consumer-protection-challenges/.
 12 U.S.C. § 5493(c).