In September, the Consumer Financial Protection Bureau (CFPB) dispensed guidance regarding the employment of artificial intelligence (AI) in the credit decision-making processes of lenders. The regulations issued focus on adherence to the Equal Credit Opportunity Act’s conditions concerning adverse action notice for lenders implementing AI in their procedures. The Bureau underscored that lenders cannot rely merely on the checklist given in the model adverse action notice under Regulation B. Instead, they should be able to provide detailed reasoning behind their actions.
Adverse action notices are critical documents as they communicate the specifics of negative credit decisions to the consumer. If lenders include AI into their decision-making processes, the reason for credit refusal can become more complex. Hence, the CFPB believes that the refusal regarding AI-assisted decisions should be well-explained and transparency in its reasoning must be prioritized by the lenders.
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