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Illustration: Rebecca Zisser/Axios

HUD recently proposed a rule that would protect financial institutions from liability for using algorithms to make lending decisions, as long as the technology used was produced or distributed by a recognized company.

Why it matters: AI can inadvertently rely on characteristics that include or are correlated with race, gender and socio-economic class, so under the proposed rule, financial institutions could make illegal determinations and hide behind an AI product.

The big picture: Financial institutions are increasingly using AI to detect suspicious activity, optimize portfolios, recommend strategic investments and assess creditworthiness.

  • The impact: There are factors the financial sector may use that — while not explicitly equivalent to race or gender — correlate with those characteristics and can result in discrimination.

How it works: Institutions may decide, for example, that unbanked individuals are less creditworthy, and using this factor in loan decisions could disadvantage people of color and women.

  • Nearly 17% of African Americans and 14% of Hispanic Americans are unbanked, compared to just 3% of white Americans.
  • 15% percent of unmarried female-headed family households are also unbanked.

What's happening: HUD released a proposed rule that would eliminate the disparate impact standard, which prohibits policies or procedures that result in a disproportionate adverse impact on protected groups. It would also shield financial institutions from liability that arises when they use AI-based tools from third parties, like tech companies for instance, whether or not there was knowledge of the problematic algorithm. 

  • What to watch: If the HUD rule is enacted, algorithms could obscure the reason for a credit denial.
  • But if denial notices are required to be made clear to borrowers, in compliance with the Fair Credit Reporting Act, potential homeowners may have some means of identifying illegal or inappropriate grounds for a determination, even if the financial institution is shielded from liability.

The bottom line: There are already challenges in applying anti-discrimination laws to AI-based determinations. The newly proposed HUD rule would make this considerably more difficult.

Miriam Vogel is the executive director of Equal AI, an adjunct professor at Georgetown Law and a former associate deputy attorney general at the Department of Justice.

Go deeper

Democrats fail to change Senate rules to pass voting rights bill

Senate Majority Leader during a news conference in Washington, D.C., on Wednesday. Photo: Alex Wong/Getty Images

Democrats failed Wednesday night to change Senate filibuster rules to pass the voting rights bill, with Sens. Joe Manchin (D-W.Va.) and Kyrsten Sinema (D-Ariz.) voting with Republicans.

The big picture: The failed effort came after Senate Republicans blocked the voting rights measure from coming to a final vote earlier Wednesday.

Updated 2 hours ago - Politics & Policy

Supreme Court rejects Trump's attempt to shield documents from Jan. 6 committee

Photo: Melissa Sue Gerrits/Getty Images

The Supreme Court rejected on Wednesday night a bid by former President Trump to block the release of documents and records from his administration to the House committee investigating the Jan. 6 riot at the Capitol.

Why it matters: Trump asked the Supreme Court to step in and block the release of the documents last month after a panel on the U.S. Court of Appeals for the D.C. Circuit unanimously denied his attempt to prevent the committee from obtaining the materials.

Updated 3 hours ago - Politics & Policy

Biden says Russia likely to invade Ukraine

President Biden addressed the brewing conflict between Russia and Ukraine during a press briefing Wednesday, saying of Russian President Vladimir Putin, "my guess is he will move in."

Why it matters: U.S. officials have issued a series of warnings about Russia's threatening military buildup on the border with Ukraine, with Secretary of State Antony Blinken saying in Kyiv earlier Wednesday that Russia could invade "on very short notice."