Lending discrimination against minorities has been a persistent issue in American banking and finance for over a century. While fair housing and credit reforms have been passed to curb discriminatory practices, the legacy of prejudice continues in the lending system today.
For example, black applicants are denied mortgages at a rate 80% higher than whites—and they are more likely to pay higher interest rates than whites.
No individual lender or institution is responsible for what is often referred to as “unexplained racial differences” in lending. These problems arise from biases built into the foundation of the lending system.
The only way to eliminate these inherent biases is to disrupt the lending system and redefine creditworthiness.
That’s the mission of the fintech company FormFree. CEO and Founder of FormFree Brent Chandler has spent the last 15 years developing a disruptive, tech-driven approach to lending that removes bias, empowers borrowers, and grows the lending market.
At the core of FormFree’s mission is data empowerment. It helps borrowers determine their creditworthiness based on relevant data that reflects their ability to make loan payments—and not on traditional and outdated credit scoring data.
With tools like Passport, RIKI, and FFX, FormFree provides borrowers with better opportunities to grow their wealth while lowering risk for lenders.
“Outdated risk assessment models have had disparate, negative impacts on Black and Latino communities across the nation,” said Brent Chandler. “At FormFree, we believe in a financial system that serves everyone, not just a select demographic.”
How Lending Bias Affects Minority Communities
Lending discrimination has a long history in the US. Like segregation, many discriminatory lending practices were legal until civil rights reforms were passed in the 1960s and 1970s.
One common practice, called redlining, involved a federal agency known as the Home Owners’ Loan Corp. (HOLC) identifying certain neighborhoods as “red zones” where “undesirable populations” lived. Lenders nationwide were recommended not to approve loans or mortgages to inhabitants of these “red zones,” which were typically populated by minority and low-income people.
Homeownership was the primary way Americans built intergenerational wealth in the 20th century, and disadvantaged people in these communities were purposefully left out.
While redlining is now illegal, communities that were once redlined still suffer from the impact of this practice, and systemic biases continue to prevent them from getting credit.
Other lending practices, which have been found to favor wealthy white consumers, were not affected by legislation and continue to harm minority communities today. One of these is the credit scoring system.
Everyone has a credit score, which is meant to determine their creditworthiness and assess risk. However, credit scores do not measure a person’s ability to make loan payments. Instead, they rate a person based on their participation in the lending system.
Due to systemic issues, minorities tend to have fewer assets and less lending data to bolster their ratings, resulting in lower credit scores and more loan denials.
This system not only negatively affects minority communities. It also punishes young people, gig workers, renters, single parents, low-income families, and others who don’t fit into the narrow and outdated data metrics measured by major credit agencies.
In fact, the credit system has become so unbalanced that over 50% of loan applications are rejected today.
To remove bias and prejudice from the lending system, it must be rebuilt from the ground up. Luckily, technology provides the tools to do just that, and forward-thinking tech firms like FormFree are making strides toward breaking the cycle of lending bias.
FormFree is Breaking the Cycle of Systemic Lending Bias
Americans have no control over who dictates their credit score or which data metrics are used to determine their creditworthiness. Even worse, in most cases, credit scores do not reflect a person’s ability to pay.
Today, it’s often the case that a person is denied a loan for a mortgage with a lower monthly payment than their current rent. This is evidence that the credit scoring system is flawed.
FormFree is modernizing risk assessment by expanding the data points used to determine creditworthiness. In this way, it’s giving users the power to better communicate their ability to make loan payments.
“The current system, governed by a select few, widens the gap between those with reliable credit access and those left behind,” said FormFree CEO Brent Chandler. “We must start empowering consumers with their own data to make better-informed decisions while allowing them to tap into the home buying experience.”
FormFree’s flagship app, Passport, helps users compile a borrower profile with data that reflects their true ability to pay. Unlike a credit score, Passport incorporates relevant data such as a user’s income, expenses, and recurring payments (such as rent).
Passport then generates an anonymous “medallion” with the user’s data, which they can use to apply for loans on FormFree’s lending market, FFX.
On FFX, lenders compete for borrowers’ business based solely on their financial data, helping users bypass the discriminatory credit rating system. As borrowers’ personal identifying information is kept anonymous, lenders are unable to view demographic info such as race, age, or location. This is another way that FormFree is eliminating lending bias.
“Our mission is to democratize lending for all people without bias,” explains Brent Chandler. “We believe that everybody borrows money and everybody has the ability to pay some amount, which we can quantify mathematically and embed in an encrypted fashion, securitizing it.”
In this modernized lending system, lenders also benefit. By measuring creditworthiness based on a borrower’s true ability to pay, FormFree is reducing risk for lenders while growing the number of eligible borrowers in the US by tens of millions.
Chandler continued, “By understanding risk as the unique common denominator of every loan, encapsulated in an encrypted fashion from the consumer, we believe that everyone will utilize Passport to generate a medallion and receive fair and unbiased access to credit on a virtual scale.”
FormFree’s new lending approach represents a disruptive change in lending practices, offering a more equitable and accurate assessment of creditworthiness. By focusing on real-time financial data and moving away from traditional credit scores, FormFree is expanding access to credit—and the means to grow wealth—to disadvantaged, underserved, and underbanked communities.
As featured in San Francisco Examiner.