ECOA/FHA regulatory compliance — disparate impact analysis and threshold mitigation
Disparate Impact
0.87
80% rule threshold: 0.80
Equalized Odds Gap
3.2%
FPR difference
Protected Groups
4
ECOA categories
Compliance
PASS
All groups above threshold
Approval Rates by Protected Group
Red dashed line = 80% of reference group rate (4/5ths rule threshold). Groups below this line trigger a disparate impact finding.
Disparate Impact Ratio
All protected groups currently pass the 4/5ths rule with the lowest ratio at 0.82 (Black vs. White reference group). However, the margin is thin — a 2% shift in the Black approval rate would trigger a regulatory finding under ECOA/FHA guidelines.
Equalized Odds — TPR & FPR by Group
Equalized odds requires both TPR and FPR to be similar across groups. A gap exceeding 5% in either metric warrants model re-calibration.
Threshold Mitigation — Fairness vs. Risk Tradeoff
Lowering the approval threshold improves fairness (higher DI ratio) but increases default risk. The optimal threshold balances regulatory compliance with acceptable credit losses.
Regulatory Framework
ECOA (Reg B)
Equal Credit Opportunity Act prohibits discrimination on the basis of race, color, religion, national origin, sex, marital status, age, or receipt of public assistance.
Fair Housing Act (FHA)
Prohibits discrimination in mortgage lending. The 80% rule (4/5ths rule) is the primary statistical test for evaluating disparate impact.
Threshold Mitigation Strategy
When disparate impact is detected, threshold mitigation adjusts the approval cutoff per protected group to achieve equal approval rates while minimizing overall credit risk increase. At threshold 0.45, the model achieves DI of 0.84 with a default rate of 8.2% — a 1.4% increase over the baseline but well within risk appetite.
Model Risk Consideration
Fair lending analysis should be repeated quarterly and after any model retraining. Changes in applicant demographics or feature distributions can shift disparate impact ratios even when the model itself is unchanged.