In my last two blogs, I have discussed the impact of Fintech’s use of Big Data in the credit decision process. See here and here. While the collection of a tremendous number of data points may be useful in evaluating an applicant’s creditworthiness, can such data mining also result in an unfair, deceptive or abusive act or practice (UDAAP)? In answering, first, let’s walk back one step.
The premise behind the collection of Big Data is that in doing so, we expand the base of acceptable applicants. That is, Fintech developers have taken the position that by gathering more and more information on potential applicants, lenders will be able to expand the universe of creditworthy applicants resulting in more consumers obtaining credit.
Now, to constitute a UDAAP, an act or practice must
(i) result in substantial injury,
(ii) not reasonably be avoidable by the consumer, and
(iii) not be outweighed by countervailing benefits to consumers or competition.
There is actually a separate legal analysis to undergo for each of the three elements of UDAAP; i.e., “unfair, “deceptive” or “abusive.” However, such a discussion is way beyond the format allowable by this blog! So, let me focus solely on whether gathering and using Big Data is “unfair.”
Not obtaining credit in today’s world seems to meet the first element of substantial injury. Strike one.
In evaluating the second element, isn’t it important to understand how credit decisioning works? Is the process transparent? Too often, the answer is “no” and consumers have no means to protect their interests— that is, they cannot reasonably avoid injury. Strike two.
But, what about the third element of “countervailing benefits?” If many consumers are benefiting from Fintech’s collection and use of Big Data, then there appears to be a countervailing benefit to both consumers and competition.
To constitute a UDAAP, all three elements have to come into play. So, unless the use of Big Data has the unintended consequence of discriminating against large segments of applicants on the basis of race, religion, gender, national origin or public assistance, it seems a stretch to argue that Fintech’s use of Big Data constitutes a UDAAP.
Please note: This is the sixty-seventh blog in a series of Back to Basics blogs, in which relevant and resourceful information can be easily accessed by clicking here.