WASHINGTON - Economists must convince lawyers and judges to reject a flawed formula before it becomes too widely used in fair-lending cases, a prominent industry observer said Tuesday.
"We have at least some chance to have the use of statistics make sense," George Washington University professor Anthony Yezer said in a speech to the National Economists Club.
The formula government officials and housing activists employ to show lending bias produces inaccurate results because it assumes borrowers can't improve their chance of securing a loan, he said.
If economists don't explain this flaw, the courts will accept these inaccurate results, just like they did in employment discrimination cases, he said.
"The easiest thing for the courts to do is to continue down the path of (employment) testing," Mr. Yezer said. "It is too bad because there are tests out there that can be explored in this area that are a lot more positive."
One alternative is to check if banks are making more money off loans to minorities, he said.
Mr. Yezer said the task of explaining economics to the court shouldn't be too difficult, noting that scientists successfully explained DNA testing.