United StatesFinance and insurance2025 – ongoingEarnest Operations
AI student-loan underwriting subject to a Massachusetts settlement
Earnest agreed to a $2.5 million settlement over lending practices that included AI underwriting
Problem
Earnest assessed student-loan applicants' eligibility and set loan terms and pricing. Its underwriting practices became the subject of a Massachusetts fair-lending investigation.
Approach
Earnest used algorithmic models in lending decisions. The attorney general alleged inadequate disparate-impact testing and use of variables that disadvantaged some applicants. The settlement required AI governance changes and discontinuation of the institution-level default-rate variable and immigration-status knockout rule.
Results
Takeaway
The settlement covered several lending practices, so its total payment cannot be attributed solely to the AI models. The regulator's discrimination claims were allegations resolved through settlement.
Categories
- Size
- Large enterprise
- Industry
- Finance and insurance
- Business function
- Finance, risk and legal
- Innovation type
- Process innovation
- AI technology
- Predictive analytics and ML
- Adoption
- Built in-house
- Goal
- Quality and risk
- Evidence
- Regulator, audit or court
Sources
Source summaries
The attorney general announced a $2.5 million settlement resolving allegations about Earnest's lending practices, including AI underwriting. It required governance changes and removal of specified underwriting inputs and rules.
Full details are in the original sources.