Federal regulators plan to more aggressively investigate the marketing of financial products for discrimination.

Suppose you are a lender looking to market a new credit card. You decide to buy ads on MSNBC, a television network whose viewership is approximately 70% White and 8% Hispanic (as opposed to the overall US population, which is 59% White and 19% Hispanic). Alternatively, opt for an audience builder that results in disproportionately targeting middle-aged consumers and excluding people over 62.

Would these marketing decisions be fair?

If you haven’t already considered questions like these, now is the time to start: Federal regulators plan to more aggressively investigate the marketing of financial products for discrimination.

Additionally, this increased regulatory focus on marketing fairness may extend to companies that are not generally viewed as part of the financial industry, such as B. External marketing companies.

In March 2022, the Consumer Financial Protection Bureau (CFPB) announced that it had changed its oversight procedures and will now “review financial institutions’ decision-making on advertising, pricing and other areas to ensure businesses are conducting appropriate testing and eliminating unlawful ones.” discrimination.”

Then, in June, the Justice Department settled with Meta over the discriminatory use of an ad feature called the Lookalike Audience Tool, which allowed landlords to exclude people of color from viewing real estate listings. The settlement ordered Meta to pay the maximum penalty under the Fair Housing Act.

Finally, in August, the CFPB issued an interpretative rule warning that digital marketers must comply with federal consumer protections if they are involved in marketing financial products.

What are the sources of discrimination in marketing?

In a sense, marketing is inherently discriminatory. Marketers need to identify the specific audience that is most likely to purchase a product, and then communicate effectively with that audience. To be effective, marketers need to differentiate the people who might buy from those who can’t or won’t.

How can marketers of financial products comply with anti-discrimination laws when discrimination is the defining characteristic of marketing?

In general, there are four categories of potential marketing discrimination in financial services:

  1. audience bias: targeting customers with protected status attributes (or proxies) such as race, gender or age;
  2. Digital redlining: Restriction of digital marketing of financial services offerings to a group defined by prohibited demographic information;
  3. Steering: Deliberately directing protected class consumers to or away from certain types of financial products; and
  4. Unfair offers: promoting higher prices or other more onerous terms and conditions or requirements to applicants for protected classes;

How is discrimination measured in financial marketing?

Financial regulators have not detailed which tests they will use to assess marketing discrimination. Every test has complications. Thus, the MSNBC example above is unlikely to be sufficient on its own to demonstrate discrimination if it is just one of many marketing channels that result in a demographically balanced portfolio.

Marketing fairness reviews are therefore likely to be triggered when regulators find evidence of potentially unwarranted differences in lending outcomes – for example, if a lender’s pool of applicants is not representative of its product’s market segment, a regulator could review the lender’s marketing practices to see if and how they contributed to the problem.

How can financial institutions and their marketing partners bias test their advertising and lead generation?

When assessing the source of unfair lending outcomes, regulators often look for “inequality drivers” – the factors that cause one group to experience a different outcome than another group, e.g. B. the approval of a loan.

In the case of marketing, these differences arise from the bias of data, models, strategy, budgets, and creative content, and can manifest themselves in a marketing program’s reach, frequency, and response rates.

Specific metrics that regulators might use to test the fairness of financial marketing include:

  • data justice: the extent to which a marketing model’s data inputs predict protection status;
  • purposefulness: a comparison of an audience’s demographics to other audience benchmarks, such as B. the demographics of the communities that a lender’s products and services serve, the demographics of its overall customer base, and/or the demographics of current users of the advertised product.
  • Fairness of target-to-reach ratio: a comparison of the demographics of the audience reached versus those of the target audience;
  • Frequency Ratio Fairness: the number of ads delivered to each protected group;
  • Spend ratio fairness: the cost of ad delivery or click-through for each protected group;
  • Response ratio fairness: the ratio of responses from each protected group;
  • Differences in the offer period: a comparison of various statistics (mean, median, minimum, maximum and sigma) for each protected group;

Further marketing fairness analysis may also include:

  • drivers of inequality: determine which data points make a difference in results for protected groups;
  • Fair Marketing Search / Less Discriminatory Alternatives: a comparison of multiple marketing campaigns, with a breakdown of the relative trade-offs between predicted response rates and fairness for protected groups;
  • redlining: a ratio of responses from low- and middle-income, majority and minority counties compared to control counties.

Exactly how regulators will assess and enforce fair marketing remains to be seen. But without a doubt, companies should expect increased scrutiny of their marketing and potentially harsh penalties for unjustified differences.

How can I manage this new regulatory risk??

Right now, the best action lenders can take is to test their marketing for unjustified differences and look for a way to mitigate them.

For lenders who take this step sooner rather than later, there are dividends that go beyond simply avoiding regulatory penalties: Fair marketing can increase profitability in the form of customer acquisition and strengthening your brand by showing the world your commitment to financial inclusion .