The Consumer Financial Protection Bureau (CFPB) recently issued new guidance regarding the legal requirements creditors must meet when employing artificial intelligence (AI) and other complex models. With the increasing use of such technologies in credit decisions, this guidance provides important clarification for lenders operating within the parameters of legal and regulatory constraints.
Building off prior regulations, the CFPB emphasized the need for lenders to provide accurate and specific reasons whenever they take adverse actions against consumers. By adverse actions, the context is primarily concerned with denials of credit, credit limit decreases or terminations of accounts predicated on the outputs provided by AI or similar models.
The critical revelation in this new guidance is that creditors can no longer merely use CFPB standard templates and checklists when communicating adverse actions to consumers. Instead, they must offer comprehensive explanations that give useful details about the reasons behind these actions.
Some law firms such as Orrick, Herrington & Sutcliffe LLP are interpreting this as a signal from the CFPB to encourage lenders to improve their transparency practices. Doing so enhances consumer understanding and demonstrates responsible lending practices that make use of advanced technologies such as AI.
For more information on the issued guidance, kindly refer to the original article on JD Supra here.