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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

Pelosi announces bid for reelection ahead of 2022 midterms

House Speaker Nancy Pelosi (D-Calif.) announced her bid for reelection Tuesday, amid a deluge of other safe-seat Democrats announcing their retirements.

Why it matters: Pelosi’s announcement follows months of speculation — despite her denials — that she was preparing to leave Congress.

Scoop: Qatar emir to visit White House on Monday

The emir of Qatar, Tamim bin Hamad Al Thani, leaves the White House after meeting President Trump in 2019. Photo: Nicholas Kamm/AFP via Getty Images

The emir of Qatar will meet with President Biden at the White House on Monday to discuss Afghanistan as well as contingency plans to provide natural gas to Europe in the event of a Russian invasion of Ukraine, Axios has learned.

Why it matters: Europe's reliance on Russia for 40% of its natural gas is undermining Biden's attempts to coordinate "massive" sanctions to be imposed from both sides of the Atlantic if Russia invades. The White House wants Qatar to help ensure European countries can enforce tough sanctions without risking an energy crisis.

Biden: There won't be "American forces moving into Ukraine"

President Joe Biden told reporters Tuesday that he does not foresee U.S. troops moving into Ukraine.

Why it matters: Biden's comments come as tensions between Russia and Ukraine persist, and a Russian invasion of Ukraine appears increasingly likely.