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How do you show that financial institutions aren't using demographic data unless you have it and run statistical analysis that shows they aren't? Banks aren't the government and can use methods that are illegal for the government to do in order to collect data. Let's say a bank manager is racist in giving out loans, how do you prove it unless you have the data to show it?

by AnthonyMouse26 minutes ago|

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How do you know if they are even if you have statistical data? Race correlates with all too many things (e.g. education, income) that affect the default rate, so a statistical disparity is expected as a result of the things that correlate with race and affect defaults even if the loan officer isn't penalizing race at all.

Statistics are doubly useless in that context because a given loan officer might process something like 20 loans a year, which is too small a sample size for statistics to show anything with high confidence anyway.

The way people like that get caught is when they incriminate themselves. And the real way you solve that problem is by ensuring a competitive market for loans, so that the economic inefficiency of not giving loans to people who would pay them back actually negatively impacts the institutions that do it, and the borrowers can find numerous other institutions willing to do business with them, instead of the racist loan officer both being the borrower's only option and their bank not suffering consequences from it because the lack of competition allows them to stay in business by also overcharging the customers they accept.