Discrimination, CFPB and You: Why Big Data Helps Avoid Big Fines - Lift361

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Discrimination, CFPB and You: Why Big Data Helps Avoid Big Fines

By Ed Higdon. Posted in Insight

October 22, 2014

While the entire American legal and financial system is built on checks and balances, one bureau stands out: the Consumer Financial Protection Bureau. This recently created body aims to educate consumers about financial responsibility and consumer rights, and enforces fairness and equality across the financial industry.

The CFPB will visit every financial institution at one point or another to ensure that its practices aren’t discriminating against any age, race or gender. If found guilty, these companies can be forced to pay some pretty hefty fines. Problem is, financial institutions may not be in compliance—and have no idea. The best way to avoid these fines is by understanding your business inside and out.

Find the Weighted Coins

If you flip a coin 100,000 times, and it turns up heads 51,000 times, statistically speaking you’ve got a weighted coin. True equality would make it 50/50, but if nobody’s counting the number of flips, you’d think your coin was more or less equal.

That’s the problem with financial institutions’ big data collections: everyone’s flipping the coin, and nobody’s counting the flips. Most don’t have the time, skills or resources to conduct the reports necessary to show company trends, and if a company isn’t keeping track, it would have no way of knowing whether it is, for example, declining more women than men by a noticeable margin.

Avoiding Disparate Impacts

Even when all the procedures and processes are “right,” discrimination can still occur. When one group is adversely affected without any identifiable systemic cause, the CFPB might cite you for disparate impact.

The only defense institutions can depend on is proactive, preventative measures. Companies like Lift361 can mine institutional data for trends and biases that are hidden in the big picture. Being able to mitigate these risks can when the CFPB knocks on your door.

Be Prepared

Being a step ahead is the only way to protect your institution from potential fines. That means having solid reports at the ready before the CFPB shows up—which could be tomorrow, next month or next year. Some companies spend upwards of $2 million on CFPB compliance, because, in the end, the cost-savings are worth it.