Algorithmic discrimination in the credit domain: what do we know about it?

Abstract

The widespread usage of machine learning systems and econometric methods in the credit domain has transformed the decision-making process for evaluating loan applications. Automated analysis of credit applications diminishes the subjectivity of the decision-making process. On the other hand, since machine learning is based on past decisions recorded in the financial institutions’ datasets, the process very often consolidates existing bias and prejudice against groups defined by race, sex, sexual orientation, and other attributes. Therefore, the interest in identifying, preventing, and mitigating algorithmic discrimination has grown exponentially in many areas, such as Computer Science, Economics, Law, and Social Science. We conducted a comprehensive systematic literature review to understand (1) the research settings, including the discrimination theory foundation, the legal framework, and the applicable fairness metric; (2) the addressed issues and solutions; and (3) the open challenges for potential future research. We explored five sources: ACM Digital Library, Google Scholar, IEEE Digital Library, Springer Link, and Scopus. Following inclusion and exclusion criteria, we selected 78 papers written in English and published between 2017 and 2022. According to the meta-analysis of this literature survey, algorithmic discrimination has been addressed mainly by looking at the CS, Law, and Economics perspectives. There has been great interest in this topic in the financial area, especially the discrimination in providing access to the mortgage market and differential treatment (different fees, number of parcels, and interest rates). Most attention has been devoted to the potential discrimination due to bias in the dataset. Researchers are still only dealing with direct discrimination, addressed by algorithmic fairness, while indirect discrimination (structural discrimination) has not received the same attention.

1: Introduction

“…An important concern at this level is that of differential disruption (Nickel et al, 2022): different groups may not be similarly affected by technological changes. For example, the use of artificial intelligence by commercial banks to make decisions about who receive a loan or mortgage may affect already underprivileged groups more than the average citizen because this technology may have a discriminatory bias (Garcia et al, 2023).…”