Automated decisions – know your rights

After months of preparation for GDPR you could be forgiven for never wanting to hear the acronym again, but a clause hidden within the regulations could have an unexpected influence on the way you work with some lenders.

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Rob Barnard | Pepper Money
15th June 2018
Rob Barnard Pepper
"This clause within GDPR puts greater weight behind their right to ask for a review on a decision that has been made using a solely automated process."

Guidance from the Information Commissioner’s Office says that Article 22(1) of GDPR limits the circumstances in which a lender can make solely automated decisions, without human involvement.

This doesn’t preclude lenders from using algorithms to make lending decisions – that would be a backwards step and make life less convenient for many borrowers and brokers.

It does, however, recognise the limitations of using factual data, digitally created profiles or inferred data in delivering the correct outcome for every borrower.

The ICO says that an organisation must ‘provide meaningful information about the logic involved and what the likely consequences are for individuals’.

This puts greater emphasis on lenders to show how and why they reached a decision, requiring them to verify the results and provide a simple explanation for the rationale behind that decision.

As a broker, you are likely to have had occasions where a lender was not able to provide an adequate explanation as to why a client has been declined as the result of an automated decision or cascaded to a more expensive rate as the result of a credit score.

Your clients have always had the ability to challenge a lending decision, but this clause within GDPR puts greater weight behind their right to ask for a review on a decision that has been made using a solely automated process.

Lenders are required to have a process in place for individuals to challenge or appeal a decision – the ICO says they should also ensure that any review is carried out by someone who is suitably qualified and authorised to change the decision. And this effectively puts the power of decision making back in the hands of underwriters.

For many lenders, who have put skilled underwriters at the heart of their business, this will not cause a problem. But for those lenders that have invested in automation at the expense of developing their underwriting teams, a rush of requests for decisions to be reviews could severely hinder their service.

This will not affect all of your clients and most will continue to be happy with the speed and convenience of an automated decision. But for those borderline cases, where the circumstances are slightly more interesting, you need to make a decision about whether you choose a lender that has put skilled underwriting at the heart of its business or chance an automated decision and appeal system that may already be overloaded.

At Pepper Money, we believe every interesting case comes with a story and that automated processes are not best equipped to interpret those stories. This is why we don’t use credit scores to determine the outcome of an application. All our lending decisions are made by mandated underwriters.

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