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Federal Reserve Bank of Philadelphia
Consumer Finance Institute discussion papers
Fair lending analysis of credit cards
David Skanderson
Dubravka Ritter
Abstract

This paper discusses some of the key fair lending risks that can arise in various stages of the marketing, acquisition, and management of credit card accounts, and the analysis that can be employed to manage such risks. The Equal Credit Opportunity Act (ECOA) and its implementing Regulation B prohibit discrimination in all aspects of credit transactions and include specific provisions relating to processes that employ credit scoring models. This paper discusses some of the areas of credit card operations that may be assessed in an effort to manage the risk of noncompliance with fair lending laws and regulations. Particular attention is focused on approaches to testing for the risk of disparate impact on a prohibited basis in credit scoring models and model-intensive prescreened marketing campaigns, as well as in judgmental credit card underwriting. The paper concludes by discussing how the fair lending risks associated with credit scoring models may be managed by synchronizing compliance oversight with an institution's model governance framework. The methods discussed in this paper are also applicable to other consumer credit products that utilize credit scoring models.


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David Skanderson & Dubravka Ritter, Fair lending analysis of credit cards, Federal Reserve Bank of Philadelphia, Consumer Finance Institute discussion papers 14-2, 18 Aug 2014.
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Subject headings:
Keywords: ECOA; Regulation B; Discrimination; Fair lending; Consumer lending; disparate treatment; Disparate impact; Credit card; Scoring model; Model governance
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