Fair Lending Analysis of Credit Cards

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.