Age Discrimination
The FLA is opposed to discrimination in any form. The FLA’s Lending Code, which is binding, requires its members not to discriminate on the basis of race, sex, disability, ethnic background or gender.
Nevertheless, age is an important factor in establishing risk. Let us take a well recognised example from the insurance industry. Young male drivers are much more likely (around four times) to have a motor accident than older drivers. This is reflected in their insurance premiums. Some might describe the practice of charging high risk drivers more to cover their extra costs as ‘age discrimination’. Most people, however, recognise that it would be unfair to expect safer drivers to subsidise high risk groups.
Age is also an important factor in FLA members’ credit risk models, to ensure that responsible lending decisions are made. Age is a well-established indicator of the likelihood of default on a credit agreement. To remove age as a factor from risk modelling would lead to increased costs both to the industry and to the consumer. It would also lead to less responsible lending decisions.
Legislation and the FLA’s stance
Clause 190 of the Equality Bill enables the Government to allow certain age-based treatment in particular circumstances. It does not, however, give explicit exemption for credit scoring (the way lenders assess risk), raising real issues. In its current form, lenders could be prevented from making responsible lending decisions at a time when the Government is calling upon them to do so.
Far from placing customers in a better position, the legislation poses a number of risks and could give rise to unintended consequences. In addition to potential irresponsible lending decisions, they include:
- Increased costs for credit
- Higher default levels
- An increase in fraud
- Increased financial exclusion, if lenders have to withdraw certain financial products
That is why the FLA calls for explicit exemption for the use of age in credit scoring and in credit risk models. A European proposal, currently under discussion, recognises that age is a legitimate underwriting consideration for retail financial services providers. The UK government consulted on the use of age in credit scoring in 2009.
Consultation: Equality Bill: Making it Work - Response by the Finance and Leasing Association
What's happening now?
Since the consultation closed in September 2009, the FLA has met HM Treasury to discuss the use of age data in financial services. Treasury officials are now drafting an Order which will govern lenders' use of age data when making credit scoring decisions. The Order will be accompanied by a consultation, and the FLA will respond with our views. We expect to see the Order later in 2011.
