Algorithmic UDAP

TL;DR

This paper compares the legal frameworks of DI and UDAP for assessing algorithmic discrimination in lending, highlighting their differences, potential complementarities, and the need for clearer regulatory guidance.

Contribution

It formalizes and operationalizes DI and UDAP in a simulated lending context, clarifying their distinctions and exploring how UDAP could address harms beyond DI.

Findings

UDAP is an independent, distinct framework from DI.

UDAP's 'unfairness' involves harm avoidability and proportionality.

UDAP may capture harms that DI analysis misses.

Abstract

This paper compares two legal frameworks -- disparate impact (DI) and unfair, deceptive, or abusive acts or practices (UDAP) -- as tools for evaluating algorithmic discrimination, focusing on the example of fair lending. While DI has traditionally served as the foundation of fair lending law, recent regulatory efforts have invoked UDAP, a doctrine rooted in consumer protection, as an alternative means to address algorithmic discrimination harms. We formalize and operationalize both doctrines in a simulated lending setting to assess how they evaluate algorithmic disparities. While some regulatory interpretations treat UDAP as operating similarly to DI, we argue it is an independent and analytically distinct framework. In particular, UDAP's "unfairness" prong introduces elements such as avoidability of harm and proportionality balancing, while its "deceptive" and "abusive" standards may capture forms of algorithmic harm that elude DI analysis. At the same time, translating UDAP into algorithmic settings exposes unresolved ambiguities, underscoring the need for further regulatory guidance if it is to serve as a workable standard.