CFPB Issues Guidance on Notifying Applicants of Credit Denials When Using AI

Posted: Sep 27 2023

Creditors must provide accurate and specific reasons for denying loan applications even when those decisions were made using technology that employs complex algorithms, the CFPB said in new guidance on the use of artificial technology in credit denials.
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In a statement, the CFPB said that creditors are increasingly using complex algorithms, marketed as AI, in their underwriting. Last year the bureau issued a circular stating that the Equal Credit Opportunity Act requires creditors to explain the specific reasons for taking adverse actions when using such technology. The new guidance expands on that previous document by stating that creditors cannot rely solely on the checklist of reasons provided in CFPB sample forms for adverse action notices.
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“Creditors that simply select the closest factors from the checklist of sample reasons are not in compliance with the law if those reasons do not sufficiently reflect the actual reason for the action taken,” the CFPB said in a statement. “Creditors must disclose the specific reasons, even if consumers may be surprised, upset or angered to learn their credit applications were being graded on data that may not intuitively relate to their finances.”

To read more, visit: https://www.consumerfinance.gov/compliance/circulars/circular-2023-03-adverse-action-notification-requirements-and-the-proper-use-of-the-cfpbs-sample-forms-provided-in-regulation-b/