Why This CU Says AI Can Reduce Lending Bias


With the Consumer Financial Protection Bureau (CFPB) examining artificial-intelligence-based lending for signs of bias, credit unions and banks are under pressure to add transparency to decision-making.

Amid the scrutiny, an Iowa credit union contends AI can help reach underserved consumers. GreenState Credit Union in North Liberty, Iowa, will shortly launch a collaboration with the financial technology firm Zest AI that will use machine-learning-powered decisions to broaden its lending base.

“Our primary reason for the partnership with Zest is to go deeper with lending to women and people of color" in the communities GreenState serves, said Amy Henderson, chief consumer services officer for the $9 billion-asset credit union.

The use of AI for loan underwriting has sparked controversy. Following the CFPB's lending discrimination settlement with Trustmark National Bank, CFPB Director Rohit Chopra said digital decision-making could disproportionately skew credit towards a specific demographic and that AI could lead to "digital redlining." The CFPB declined to comment for this story.

GreenState examined its recent history and determined it could approve more loans within underserved communities. "We will be able to use Zest's model to go deeper within credit scoring while simultaneously mitigating the risks posed to the credit union," said Henderson, adding that despite the pressure from the CFPB the credit union is confident in its decision to integrate a machine-learning-developed algorithm into its underwriting instead of relying solely on FICO scores.

The CFPB's stance on AI comes as credit unions increasingly forge fintech partnerships to compete with neobanks, a strategy that relies on AI. About 42% of credit union leaders are planning to implement machine-learning technologies for 2022 or already have, according to a December 2021 survey of 300 bank and credit union executives by Cornerstone Advisors in Scottsdale, Arizona.

Article published on the American Banker on April 20.

Zest AI, provided by CUNA Strategic Services, helps credit unions and financial institutions answer their most important question: Who do I lend to? Zest’s Model Management System lets lenders break the limitations of traditional credit scores to identify good borrowers overlooked by legacy techniques. CUNA Strategic Services is an exclusive business partner of the California and Nevada Credit Union Leagues.