Opinions expressed by Digital Journal contributors are their own.
The traditional credit system has long been criticized for its bias against minorities and lower-income demographics. The combination of systemic lender bias and an outdated credit scoring system has made it difficult for hard-working Americans of color to access the capital they need to buy homes, start businesses, and improve their lives.
The current inflationary environment and growing credit crisis are not improving the situation. People of color are still more likely to be denied credit, and when they are approved, they pay higher rates of interest, reducing their ability to build wealth.
FormFree, a fintech company founded by former Wall Street exec Brent Chandler, is disrupting the entrenched credit system by redefining creditworthiness and removing bias from lending markets.
FormFree’s easy-to-use tools such as Passport, RIKI, and FFX are modernizing the lending process and promoting a fairer lending environment for all.
“Outdated risk assessment models have had disparate, negative impacts on Black and Latino communities across the nation,” said FormFree founder and CEO Brent Chandler, who brings over 25 years of expertise in finance to FormFree.
“To better serve these communities, the mortgage industry must adopt more inclusive lending models. FormFree understands this, and we are committed to reshaping lenders’ historically narrow view of the credit box.”
“The system was never created for us”: Bias in traditional lending
Lending discrimination against minorities and low-income Americans is sewn into the fabric of the nation’s lending system.
Practices such as redlining prevented inhabitants of certain neighborhoods — deemed “undesirable populations” — from accessing mortgages and insurance. Exclusionary zoning laws, which dictated where affordable housing could be built, ensured that minority and low-income communities remained in redlined districts.
When minorities were able to secure credit, the interest rates they were offered were predatory.
Legislation passed in the 60s and 70s helped to curb lending discrimination, but because lending bias is systemic, minorities continue to suffer from the same disadvantages.
For example, mortgage lenders deny black applicants at a rate 80% higher than whites.
Today, the homeownership gap between white and black homeowners is larger than it was when lending discrimination was legal.
These issues don’t only affect individuals. During the COVID-19 pandemic, minority-owned businesses were last in line for PPP loans. Additionally, Minority business owners were given less information about loans and less money than their white counterparts.
“The system was not created for us,” remarked a black entrepreneur on the systemic inequities that keep minorities from accessing capital.
Held back by a flawed system
The credit scoring system has been cited as a foundation of the discriminatory lending that persists today. Modern credit scoring algorithms have been found to favor wealthier, white applicants.
This is not due to prejudice by any person or institution. It happens because minorities have less data in their credit histories. A lack of data results in less precise (and lower) credit scores.
This data problem also affects gig workers, renters, young people, single parents, and low-income consumers. Over time, this has led to spiking loan denials — over 50% of home, auto, and credit applications are denied today.
It’s clear that the current credit system needs a major overhaul. Unfortunately, credit rating institutions are entrenched, and consumers have no power over their algorithms.
But there is hope. Technology is helping consumers take back control of their data. FormFree is leading the way with tools that help borrowers compile their data, connect with lenders, and secure access to credit based primarily on their ability to make loan payments.
FormFree: Revolutionizing credit access
The credit system may be entrenched, but that doesn’t mean consumers and lenders must conform to it. FormFree has developed a suite of tools that is disrupting the outdated credit scoring system, making access to credit and home loans more equitable.
According to CEO Brent Chandler, the mission of FormFree is to “democratize lending for all people without bias.”
At the heart of FormFree’s service is data empowerment. Tools like Passport help users build a profile with relevant data that more accurately communicates their ability to make loan payments.
This data includes recurring payments (such as rent), income, and expenses. These are excellent indicators of creditworthiness, yet they are ignored by the major credit rating agencies.
Passport compiles this data and generates a “medallion,” which a borrower can use to anonymously apply for loans in FormFree’s marketplace, FFX.
On FFX, lenders compete for borrowers based only on their financial data — not on their race, location, sex, or any other factor that could lead to bias. Lenders determine borrower eligibility using a new type of assessment called RIKI, which helps them uncover new lending opportunities according to borrowers’ true ability to pay.
“Everybody borrows money, and everybody has the ability to pay some amount,” explains Chandler. “We can quantify that mathematically, empirically, verify it, certify it, report on it, and embed that in an encrypted fashion, securitizing it.”
By redefining and anonymizing creditworthiness, FormFree is dismantling the systemic bias in traditional lending and providing new opportunities to tens of millions of Americans boxed out of the traditional lending system.
The future of fair lending
The traditional lending system does not benefit most Americans, and it has held back minorities and disadvantaged communities for far too long.
Consumers should not have to participate in a cycle of predatory debt just to generate a credit score. And their ability to obtain a mortgage should not be at the mercy of algorithms and credit agencies (who often make errors that can cause scores to drop).
FormFree is changing the way lenders and borrowers view creditworthiness to the benefit of both groups. Lenders benefit from a larger pool of low-risk borrowers, and borrowers enjoy higher approval rates and lower interest.
“FormFree looks at the world a little bit differently,” says CEO Brent Chandler. “By focusing on understanding risk at a consumer level, removing bias, and doing it safely, we can better serve the underserved. In the future, we believe that everyone will use Passport to generate a medallion to receive fair and unbiased access to credit on a virtual scale.”
FormFree’s approach to lending is part of a movement towards a fairer financial ecosystem. By challenging outdated norms and leveraging technology to ensure fairness and security, FormFree is building a foundation of fair lending that works for everyone.