Impact of anti-discrimination laws on credit scoring
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Galina Andreeva is a research student studying at the University of Edinburgh the use of generic models for revolving credit across European countries. Her current research interests are credit scoring, survival analysis and generic modelling across geographic regions.
Jake Ansell is a senior lecturer at the University of Edinburgh specialising in customer segmentation and propensity modelling. His current interests are modelling of customer behaviour based on information retained by financial institutions.
Jonathan Crook is Professor of Business Economics at the University of Edinburgh and specialises in credit scoring, and the demand and supply for credit and credit constraints. His current research focuses on reject inference and consumer search for low interest rates.
Abstract The political desire for further integration within the European Union will have an increasing effect on the financial services industry, including banking and credit lending. Harmonisation can potentially have great benefit for consumers as the European banks compete for their business across the Union. Harmonisation, however, brings with it a set of decisions for both credit grantors and regulators. There are issues associated with information that can be used in risk assessment to ensure fair decisions in granting credit. In the past the rules have been developed under national legislation. EU directives seek to harmonise the national rules and provide a new guidance on variables that may be held. The major concern relates to the issue of discrimination. The aim of the law is to promote the principle of equal treatment, which can be interpreted in a number of ways. The legal interpretation of discrimination does not necessarily coincide with the economic standpoint. Furthermore, previous empirical research suggests that prohibition of variables may not only affect the ability to distinguish between good and bad risk, but may also be disadvantageous to the groups the legislation is supposed to protect. This paper explores these issues from both theoretical and practical points of view. Keywords European Union harmonisation, credit scoring, anti-discrimination laws, regulation
INTRODUCTION
Galina Andreeva Management School, The University of Edinburgh, 50 George Square, Edinburgh, EH8 9JY, UK Tel: +44 131 651 1235; Fax: +44 131 668 3053; e-mail: [email protected]
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A single market implies that eventually services offered will be available across all national boundaries with the European Union (EU). This requires political negotiation to establish an acceptable level of consumer protection across the EU, including equal treatment of credit
Journal of Financial Services Marketing
Vol. 9, 1 22–33
applicants. Equal treatment implies not discriminating against specified groups. This is established through Article 12 EC that proclaims non-discrimination on the grounds of nationality, and Article 13 EC that lays the foundation for combating discrimination based on sex, racial or ethnic origin, religion or belief, disability, age or sexual
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