Student Lender Denies AI-Discrimination Allegations But Will Pay $2.5M Settlement
Student loan provider Earnest Operations will pay $2.5 million for alleged AI-based discrimination and other violations as part of a settlement with Massachusetts, Attorney General Andrea Campbell (D) announced Thursday. However, the company, in a statement to us, denied and disagreed with the allegations. “A reputable third party reviewed our underwriting and found no evidence of these allegations," Earnest told us in a statement.
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The settlement resolves charges that the tech-based lender’s practices violated consumer protection laws. In particular, it allegedly used AI models that discriminated against applicants and borrowers who were Black, Hispanic or non-citizens.
In addition to the fine, Earnest must implement changes to its business practices, including developing and maintaining "robust written policies to ensure responsible and legally compliant use of AI.”
The AG alleged that Earnest didn't take reasonable measures to train and test its AI models to make sure they weren't discriminatory. The company’s use of the “Cohort Default Rate,” or the average rate of loan defaults linked with a specific education institution, also resulted in a discriminatory impact against certain groups of applicants, in violation of the state Consumer Protection Act and fair lending laws.
In addition, the state said Earnest violated the Equal Credit Opportunity Act (ECOA) by “automatically denying loan applications based on immigration status."
In its statement to Privacy Daily, a spokesperson for Earnest said, "While we have reached an agreement to resolve this matter, we fundamentally disagree with and deny the allegations.” The company said it resolved the issue "to avoid a prolonged legal dispute, allowing us to remain focused on our core mission to make higher education affordable for all."