Fair Housing
A Florida bank's automated loan approval system consistently denies loans to applicants with addresses in certain zip codes that correspond to minority-majority neighborhoods. This may constitute:
AAcceptable algorithmic risk management
BDisparate impact discrimination violating the Fair Housing Act and ECOA✓ Correct
CLegal geographic underwriting
DOnly a problem if the bank knows about the bias
Explanation
Even facially neutral policies (like zip code-based credit decisions) that have a disproportionate adverse impact on protected classes can constitute illegal disparate impact discrimination under the Fair Housing Act and ECOA.
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Key Terms to Know
Fair Housing Act
Federal law prohibiting discrimination in the sale, rental, or financing of housing based on race, color, national origin, religion, sex, disability, and familial status.
SteeringAn illegal practice where a real estate agent directs buyers toward or away from certain neighborhoods based on the buyer's race, religion, national origin, or other protected characteristics.
RedliningAn illegal practice where lenders or insurers deny services or charge higher rates in certain neighborhoods based on the racial or ethnic composition of those areas.
Pre-ApprovalA lender's conditional commitment to loan a specific amount to a borrower, based on verified income, credit, and assets.
State-Specific Concepts
DRE Regulation
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