CFPB Demands Adverse-Action Notices No Matter AI Opacity

Targeting AI’s fair-lending implications, the CFPB today issued its third circular laying out new policy without public notice or comment.  As with the previous circular (see FSM Report DEPOSITINSURANCE113), the new one expressly establishes CFPB enforcement policy and, by inference, thereby sets new standards.   The Bureau now lays out lender fair-lending obligations for any “black-box” models used for credit underwriting and a requirement for adverse-action notices stipulating the reason for credit denial.

Numeric Scores Join Credit Scores on Hot Seat

The GAO today released a report calling on Congress to give consumers protections for numerical scores affecting business decisions similar to those mandated for credit scores.  Although the thrust of GAO’s study is targeted marketing that leads to discounts or other advantageous product offerings, the scores banks used to evaluate depositor risk might well fall under this new framework, as more clearly would any cross-selling decisions.  Risks of concern to GAO include bias, unduly high costs, restricted product offerings, and opacity that puts consumers at greater risk in light of difficulties correcting any problematic conclusions.