Briefs

In a report to Congress that is certain to generate controversy, the Federal Reserve Board says ...

... After a massive research effort over several years that focused on three different credit-scoring models -- including one created by Federal Reserve staff economists -- the agency concluded that:

Credit-score statistical factors and models are not biased against any particular demographic group, but are highly predictive of future payment performance. Lower scores correlate strongly with future delinquencies; higher scores are associated with good payment performance.

African-Americans and Hispanics, on average, "have lower credit scores than non-Hispanic whites and Asians."

Younger individuals of all demographic groups tend to have lower credit scores on average than older individuals, in part because credit-scoring models focus on past payment histories and length of credit accounts. Younger consumers generally have fewer accounts and shorter payment histories.

The payment performances of some demographic groups are somewhat worse - -- or better - -- than their numerical scores might suggest. For example, according to the Fed, "blacks, single individuals, individuals residing in lower-income or predominantly minority census tracts show consistently higher incidences of bad performance than would be predicted " by their credit scores. On the other hand, "Asians, married individuals, foreign-born (particularly, recent immigrants), and those residing in higher-income census tracts consistently perform better than predicted " by their credit scores.

...

Paul Hancock, former director of the Justice Department's fair-lending unit, now in private practice with the law firm of K&L Gates, called the study's results "startling."

"It is very troubling for me as someone who has been an advocate for fair lending for many years" to find such credit-score divergences among racial and ethnic groups.

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