On Tuesday, the Consumer Financial Protection Bureau (CFPB) released guidelines for lenders to adhere to when using artificial intelligence and other models to deny consumers credit.
The guidance outlines legal requirements creditors must meet in providing specific and accurate reasons why adverse actions were taken against consumers. In short, CFPB said, creditors can’t simply use sample adverse action forms and checklists if they do not reflect the actual reason credit was denied or credit conditions were changed.
“Technology marketed as artificial intelligence is expanding the data used for lending decisions, and also growing the list of potential reasons for why credit is denied,” CFPB Director Rohit Chopra said. “Creditors must be able to specifically explain their reasons for denial. There is no special exemption for artificial intelligence.”
CFPB said creditors are increasingly using complex algorithms, artificial intelligence and other predictive decision-making technologies to determine creditworthiness. Often the data used may be harvested from consumer surveillance, the agency said. As a result, consumers may be denied credit for reasons they may not think are relevant to their finances. Additionally, the agency said, some creditors may rely on sample forms from CFPB. The Equal Credit Opportunity Act prohibits creditors from conducting check-the-box exercises when giving consumers notice of adverse credit actions if doing so fails to adequately inform the consumer what was wrong.
The agency said the guidance explains further information provided last year that creditors are required to explain the specific reasons adverse actions were taken – even if the companies use complex algorithms and black-box credit models, which make it harder to identify the reasons.