Algorithmic consumer credit scoring has caused anxiety among scholars and policy makers. After a significant legislative effort by the European Union, the General Data Protection Regulation (GDPR) containing provisions tailored to automated decision-making (ADM) was implemented. When the EU Commission and the US Department of Commerce negotiated for US organizations to whom data from EU data controller is transferred to comply with the key principles of EU Data Protection Law under the EU-US Privacy Shield (PS) Framework, the Department of Commerce refused to incorporate the GDPR principles governing ADM in the PS Framework. The EU Commission accepted this refusal reasoning that where US companies make automated decisions with respect to EU data subjects, such as in consumer credit risk scoring, there are laws in the US that protect the consumer from adverse decisions. This view contradicts recommendations for implementing GDPR-Inspired law in the US to tackle the challenges of automated consumer credit scoring. This article argues that despite the different approaches to the regulation of automated consumer credit scoring in the EU and the US, consumers are similarly protected in both jurisdictions. US consumer credit laws have the necessary flexibility to ensure that adverse automated decisions are tackled effectively. By analyzing statutes, cases, and empirical evidences, the article demonstrates that the seemingly comprehensive legal rules governing ADM in the GDPR do not make the EU consumers better off. In addition, the challenges presented by the increasing sophistication of Artificial Intelligence (AI) and Machine Learning(ML), consumers in both jurisdictions in a similarly vulnerable position as neither jurisdiction is equipped to tackle decisions made by autonomous, unpredictable and unexplainable algorithms. This is consistent with the EU Commission’s white paper on AI which acknowledges some of the flaws in the GDPR and envisions legislative reform. In view of the limits of the existing legal rules in addressing ML decisions and the need to strike a balance between encouraging innovation and consumer protection, the article proposes risk-based approach to regulation and regulatory sandboxing as good starting points.
{"title":"The American Way — Until Machine Learning Algorithm Beats the Law? Algorithmic Consumer Credit Scoring in the EU and US","authors":"A. Gikay","doi":"10.2139/ssrn.3671488","DOIUrl":"https://doi.org/10.2139/ssrn.3671488","url":null,"abstract":"Algorithmic consumer credit scoring has caused anxiety among scholars and policy makers. After a significant legislative effort by the European Union, the General Data Protection Regulation (GDPR) containing provisions tailored to automated decision-making (ADM) was implemented. When the EU Commission and the US Department of Commerce negotiated for US organizations to whom data from EU data controller is transferred to comply with the key principles of EU Data Protection Law under the EU-US Privacy Shield (PS) Framework, the Department of Commerce refused to incorporate the GDPR principles governing ADM in the PS Framework. The EU Commission accepted this refusal reasoning that where US companies make automated decisions with respect to EU data subjects, such as in consumer credit risk scoring, there are laws in the US that protect the consumer from adverse decisions. This view contradicts recommendations for implementing GDPR-Inspired law in the US to tackle the challenges of automated consumer credit scoring. \u0000 \u0000This article argues that despite the different approaches to the regulation of automated consumer credit scoring in the EU and the US, consumers are similarly protected in both jurisdictions. US consumer credit laws have the necessary flexibility to ensure that adverse automated decisions are tackled effectively. By analyzing statutes, cases, and empirical evidences, the article demonstrates that the seemingly comprehensive legal rules governing ADM in the GDPR do not make the EU consumers better off. In addition, the challenges presented by the increasing sophistication of Artificial Intelligence (AI) and Machine Learning(ML), consumers in both jurisdictions in a similarly vulnerable position as neither jurisdiction is equipped to tackle decisions made by autonomous, unpredictable and unexplainable algorithms. This is consistent with the EU Commission’s white paper on AI which acknowledges some of the flaws in the GDPR and envisions legislative reform. \u0000 \u0000In view of the limits of the existing legal rules in addressing ML decisions and the need to strike a balance between encouraging innovation and consumer protection, the article proposes risk-based approach to regulation and regulatory sandboxing as good starting points.","PeriodicalId":385192,"journal":{"name":"LSN: Other Consumer Credit Issues (Sub-Topic)","volume":"85 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-08-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"126316655","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The debacle of financial system in the United States in 2008 has been attributed to the subprime lending in mortgage sector, securitization of these subprime mortgage loans and taking aggressive positions in the resulting mortgage backed securities (MBS) and corresponding opposite positions in credit default swaps (CDS). The subprime loans during 2008 constituted 41% of total consumer lending. Absence of regulations along with improper assessment of liquidity in the financial system fueled the ripple effect of recession across the world. Since then, many regulations have come into place across various jurisdictions thereby increasing transparency, strengthening the KYC norms and improving the regulatory oversight. However, since the start of the financial crisis (in 2008), loans to customers with low credit scores have increased drastically. This time the bubble is not in the mortgage markets, but a bubble is being formed in the Auto loans, personal loans and credit cards markets. Specifically, the rise in the subprime loans in Auto sector calls for a caution. These loans are given to customers with low credit scores by various financial institutions and non-financial institutions.
{"title":"Will the Bubble Burst Be Revisited","authors":"P. D. Aditya","doi":"10.2139/ssrn.2575590","DOIUrl":"https://doi.org/10.2139/ssrn.2575590","url":null,"abstract":"The debacle of financial system in the United States in 2008 has been attributed to the subprime lending in mortgage sector, securitization of these subprime mortgage loans and taking aggressive positions in the resulting mortgage backed securities (MBS) and corresponding opposite positions in credit default swaps (CDS). The subprime loans during 2008 constituted 41% of total consumer lending. Absence of regulations along with improper assessment of liquidity in the financial system fueled the ripple effect of recession across the world. Since then, many regulations have come into place across various jurisdictions thereby increasing transparency, strengthening the KYC norms and improving the regulatory oversight. However, since the start of the financial crisis (in 2008), loans to customers with low credit scores have increased drastically. This time the bubble is not in the mortgage markets, but a bubble is being formed in the Auto loans, personal loans and credit cards markets. Specifically, the rise in the subprime loans in Auto sector calls for a caution. These loans are given to customers with low credit scores by various financial institutions and non-financial institutions.","PeriodicalId":385192,"journal":{"name":"LSN: Other Consumer Credit Issues (Sub-Topic)","volume":"6 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2015-03-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"114868393","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Mutual funds report performance in the form of a holding period return (HPR) over standardized horizons. Changes in HPRs are equally influenced by new and previously reported stale returns which enter and exit the horizon. Investors appear unable to differentiate between the joint determinants, reacting with equal strength to both signals. Stale performance chasing is amplified for funds which promote performance via advertising and is more pronounced during periods of uncertainty in financial markets. Fund managers exploit this behavior by preferentially timing fee increases to align with periods of heightened investor demand resulting from stale performance chasing.
{"title":"Past Performance May Be an Illusion: Performance, Flows, and Fees in Mutual Funds","authors":"B. Phillips, Kuntara Pukthuanthong, P. Rau","doi":"10.2139/ssrn.2168768","DOIUrl":"https://doi.org/10.2139/ssrn.2168768","url":null,"abstract":"Mutual funds report performance in the form of a holding period return (HPR) over standardized horizons. Changes in HPRs are equally influenced by new and previously reported stale returns which enter and exit the horizon. Investors appear unable to differentiate between the joint determinants, reacting with equal strength to both signals. Stale performance chasing is amplified for funds which promote performance via advertising and is more pronounced during periods of uncertainty in financial markets. Fund managers exploit this behavior by preferentially timing fee increases to align with periods of heightened investor demand resulting from stale performance chasing.","PeriodicalId":385192,"journal":{"name":"LSN: Other Consumer Credit Issues (Sub-Topic)","volume":"23 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2014-09-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127800950","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Spanish Abstract: Este articulo analiza el regimen de proteccion de los clientes bancarios en el ordenamiento juridico espanol, en el marco de la normativa europea y considerando las soluciones en derecho comparado. Se estudia la situacion de vulnerabilidad de consumidores financieros y se cuestiona si la custodia del ahorro depositado en cuenta y el acceso al credito son servicios basicos que deben ser garantizados a todos los ciudadanos.English Abstract: This article analyzes the protection regime of banking clients in Spanish Law, within the framework of European legislation and considering Comparative Law solutions. It studies the state of vulnerability of financial consumers, and questions if bank accounts and access to credit are basic services that must be ensured to all citizens.
{"title":"Derechos del consumidor de servicios y productos financieros como derechos básicos (Financial Services and Products Consumer's Basic Rights)","authors":"F. Zunzunegui","doi":"10.2139/SSRN.2622954","DOIUrl":"https://doi.org/10.2139/SSRN.2622954","url":null,"abstract":"Spanish Abstract: Este articulo analiza el regimen de proteccion de los clientes bancarios en el ordenamiento juridico espanol, en el marco de la normativa europea y considerando las soluciones en derecho comparado. Se estudia la situacion de vulnerabilidad de consumidores financieros y se cuestiona si la custodia del ahorro depositado en cuenta y el acceso al credito son servicios basicos que deben ser garantizados a todos los ciudadanos.English Abstract: This article analyzes the protection regime of banking clients in Spanish Law, within the framework of European legislation and considering Comparative Law solutions. It studies the state of vulnerability of financial consumers, and questions if bank accounts and access to credit are basic services that must be ensured to all citizens.","PeriodicalId":385192,"journal":{"name":"LSN: Other Consumer Credit Issues (Sub-Topic)","volume":"27 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2013-11-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"126744521","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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