Upstart consumer loan model discriminates against Blacks

Law firm Relman Colfax found that a loan decision model deployed by San Mateo-based AI consumer lender Upstart produced 'significant disparities' in how often loans were made to Black and non-Hispanic white borrowers.

Upstart assesses and predicts creditworthiness using so-called 'Alternative Data', including a person's educational and employment history. The company says its approach is more inclusive than the underwriting methods used by many banks.

The AI lender claims its algorithmic lending model approved 30 percent more Black borrowers than traditional models in 2020. However, academic research published in January 2022 indicated discriminatory pricing exists in both traditional and fintech lending.

In July 2022, Upstart directors were hit by a class-action investor lawsuit claiming it made false and misleading statements about its business, operations, and prospects.

Legal, regulatory 👩🏼‍⚖️

• https://www.businesswire.com/news/home/20220513005551/en/INVESTOR-ALERT-Upstart-Holdings-Inc.-Investors-with-Substantial-Losses-Have-Opportunity-to-Lead-the-Upstart-Class-Action-Lawsuit---UPST

• https://financialservices.house.gov/uploadedfiles/hhrg-117-ba00-wstate-girouardd-20210507.pdf

Investigations, assessments, audits 🧐

• https://www.relmanlaw.com/media/news/1332_PUBLIC_Upstart_Monitorship_3rd_Report_FINAL.pdf

• https://www.relmanlaw.com/media/news/1182_PUBLIC%20Upstart%20Monitorship_2nd%20Report_FINAL.pdf

• https://www.relmanlaw.com/media/cases/1086_Upstart%20Initial%20Report%20-%20Final.pdf

Research, advocacy 🧮

• https://www.sciencedirect.com/science/article/abs/pii/S0304405X21002403?via%3Dihub

• https://researchrepository.wvu.edu/cgi/viewcontent.cgi?article=6335&context=wvlr

• https://www.degruyter.com/document/doi/10.1515/9783110749472-006/pdf

• https://protectborrowers.org/wp-content/uploads/2020/02/Education-Redlining-Report.pdf

News, commentary, analysis 🗞️

• https://www.americanbanker.com/news/upstart-says-its-improving-ai-models-after-report-finds-race-approval-disparities 

• https://www.americanbanker.com/news/fresh-off-ipo-upstart-aims-to-push-boundaries-of-ai-based-lending 

• https://www.marketwatch.com/story/fico-scores-leave-out-people-on-the-margins-upstarts-ceo-says-can-ai-make-lending-more-inclusive-without-creating-bias-of-its-own-11627040436

• https://www.law360.com/articles/1516114/upstart-investor-sues-execs-over-ai-based-lending-claims 

• https://www.marketwatch.com/story/do-ai-powered-lending-algorithms-silently-discriminate-this-initiative-aims-to-find-out-11637246524

• https://www.nationalmortgagenews.com/news/upstart-says-its-improving-ai-models-after-report-finds-race-approval-disparities

• https://www.nytimes.com/2020/09/18/business/digital-mortgages.html

• https://www.protocol.com/fintech/upstart-loans-balance-sheet