The news: The Consumer Financial Protection Bureau reminded financial institutions (FIs) that if they deny credit credit to consumers, they must still explain why, accurately and in detail—even if AI or an algorithm made the decision.
Give me good reasons: A CFPB press release warns FIs not to use generic boilerplate or checklists in their adverse action notices.
The big picture: FIs are increasingly turning over credit decisions to AI and complex algorithms which don’t use the same logic as traditional computer programs in the underwriting process.
The memorable quote: CFPB Director Rohit Chopra said in a statement, “Creditors must be able to explain the reason for their denial. There is no exemption for artificial intelligence.”
Our take: The CFPB’s warning is another example of the disconnect between consumers and companies that are racing to take advantage of the efficiencies that AI products offer.
Action item: Consumers may be surprised or upset to learn that their credit evaluations included data that may not intuitively relate to their finances. If their adverse action notices don’t offer clear explanations, FIs need to prepare scripts for customer-facing staff who may encounter these situations.
One Liberty Plaza9th FloorNew York, NY 100061-800-405-0844