Algorithmic Credit Scoring and Consumer Credit Regulation in the UK: Evaluating the Case for Reform

Abstract

This thesis examines the rise of algorithmic credit scoring (ACS) within the UK’s consumer credit market and assesses its legal and regulatory implications. Driven by increased amounts of data and developments in artificial intelligence and machine learning, ACS offers the potential to transform consumer creditworthiness assessments by adopting an ‘all data is credit data’ approach to credit scoring. On the one hand, this innovation has the potential to improve the overall functioning of the consumer credit market, where the increased access to data can allow for increased access to credit and improve the accuracy and efficiency of creditworthiness assessments. On the other hand, ACS presents potential risks that cannot be underestimated, including algorithmic bias, exploitation of vulnerable consumers and the lack of transparency and interpretability in the algorithms used.

This thesis will explore the evolution from traditional credit scoring models towards ACS, proceeding to evaluate the benefits and risks arising from this innovation. The need for regulatory intervention to strike a sufficient balance between harnessing its perceived benefits whilst mitigating its potential risks will be explored, and the sometimes-conflicting goals underlying ACS regulation will be examined. This will lead to our overarching question as to how ACS can be regulated effectively, where it will be explored whether the UK’s existing regulatory approach is sufficient or whether an alternative should be explored, drawing comparison to the EU’s bolder regulatory approach to artificial intelligence (in general) and ACS (in particular).

Ultimately, this thesis will argue that effective regulation is necessary to strike a sufficient balance between harnessing the benefits of ACS, whilst mitigating the potential risks that may occur and minimising any potential regulatory trade-offs and costs in doing so. In response, proposals for reform will be made to strengthen the UK’s regulatory approach to artificial intelligence moving forwards.