An AI system generates loan modification recommendations for distressed borrowers. A fair lending audit reveals that the model recommends less favorable modification terms for borrowers in predominantly Black zip codes, even after controlling for credit score and loan-to-value ratio. Under which legal framework would this finding MOST likely be investigated?
Select an answer to reveal the explanation.
Short Explanation and Infographic
Here's the deal — b is correct because discriminatory loan modification terms based on race (even if proxied through zip code) in residential mortgage lending fall under the Fair Housing Act and ECOA, which prohibit discrimination in all aspects of credit transactions including modifications. The use of zip code as a racial proxy is a recognized form of redlining under FHA enforcement.
Full explanation below image
Full Explanation
B is correct because discriminatory loan modification terms based on race (even if proxied through zip code) in residential mortgage lending fall under the Fair Housing Act and ECOA, which prohibit discrimination in all aspects of credit transactions including modifications. The use of zip code as a racial proxy is a recognized form of redlining under FHA enforcement. CFAA (A) addresses unauthorized computer access, not algorithmic discrimination. GDPR (C) is a privacy regulation, and zip code is not a GDPR-protected attribute per se. SOX (D) addresses financial reporting integrity, not lending discrimination.