Massachusetts AG v. Earnest: $2.5M Settlement for AI Underwriting Bias

Summary

The Massachusetts AG alleged that Earnest, a student-loan company, failed to mitigate the risk of disparate harm to Black, Hispanic, and non-citizen applicants and borrowers arising from its use of AI underwriting models, in violation of state consumer-protection and fair-lending law.

Details

• Violation: Algorithmic discrimination in AI underwriting
• Penalty: $2.5M settlement
• Framework: Massachusetts Consumer Protection Act + fair lending laws
• Status: Settled (July 2025)

Key Takeaways

1. State AGs are actively pursuing AI bias cases under existing consumer protection laws
2. AI underwriting models must be tested for disparate impact on protected groups
3. Companies must develop AI governance structures including risk assessments and bias testing
4. Settlements require ongoing governance — not just monetary penalties

Injunctive Relief

Earnest must develop and maintain a governance structure for its covered AI models, including written policies, risk assessments, bias testing, model inventories, documentation, and a dedicated oversight team.