On September 20th, the Consumer Financial Protection Bureau (CFPB) published guidance concerning credit denials by lenders using artificial intelligence.
The directive, alluded to as ‘Consumer Financial Protection Circular, 2023-03’, explores guidelines from the perspective of the Equal Credit Opportunity Act, as well as its affiliated Regulation, Regulation B. The aim was to illuminate the roster of reasons that must be articulated when an applicant is disqualified from acquiring credit.
Belonging to Regulation B is an Appendix which flaunts an illustration of a Notification Form. This form includes 23 reasons behind credit denial, and additionally an expansive, non-specified reason that could be employed for adverse circumstances.
The guidelines come at a time when an increasing amount of lenders are incorporating artificial intelligence into their credit decision-making processes. AI applications have the potential to reinforce these processes by granting loans efficiently and quickly. However, it is imperative for lenders to fully comprehend and stay within the legal confines of these decisions, including providing accurate disclosure of reasons behind credit denial.
For a more comprehensive study of the guidance and its impacts, readers are encouraged to refer to the original guidance found here.