Surrounding these laws is a bunch of regulation and agency interpretation - i.e. if an agency doesn't like your lending/free association choices they'll hit you with lawsuits/regulatory
actions that are themselves very punishing.
As a concrete example, see Figure 7 of this paper. This figure shows that lenders could avoid a lot of defaults if they did per-race isotonic regression on FICO scores. In non-technical terms, this means a black person with a FICO score of 600 is more likely to default than an Asian person with the same score, and this information is easy to use. However, lenders are legally forbidden from using this information; as a result, lenders must associate with people (potential defaulters) that they don't want to and Asian people must pay higher interest rates because of this.
https://en.wikipedia.org/wiki/Equal_Credit_Opportunity_Act
https://en.wikipedia.org/wiki/Fair_Housing_Act
Surrounding these laws is a bunch of regulation and agency interpretation - i.e. if an agency doesn't like your lending/free association choices they'll hit you with lawsuits/regulatory actions that are themselves very punishing.
As a concrete example, see Figure 7 of this paper. This figure shows that lenders could avoid a lot of defaults if they did per-race isotonic regression on FICO scores. In non-technical terms, this means a black person with a FICO score of 600 is more likely to default than an Asian person with the same score, and this information is easy to use. However, lenders are legally forbidden from using this information; as a result, lenders must associate with people (potential defaulters) that they don't want to and Asian people must pay higher interest rates because of this.
https://drive.google.com/file/d/0B-wQVEjH9yuhanpyQjUwQS1JOTQ...