The Biden administration says no to AI-driven credit denials. The Consumer Financial Protection Bureau issued new guidance to discourage this business practice.
Here are the new requirements of CFPB that creditors need to follow strictly.
Biden Admin Says NO to AI-Driven Credit Denials
Alain Filiz shows off some of his credit cards as he pays for items at Lorenzo's Italian Market on May 20, 2009 in Miami, Florida. Members of Congress today passed a bill placing new restrictions on companies that issues credit.
According to Fox Business' latest report, the Biden Admin warned lenders not to use artificial intelligence when making credit denials. Right now, numerous industries are already incorporating AI, as well as machine learning technologies, to make their tasks easier.
However, the US government warns about the negative effects of relying too much on AI tools. Officials are still trying to establish regulations effective enough to control the rise of artificial intelligence.
Now, CFPB has announced a new guideline that will restrict lenders from using AI and other modeling systems when considering credit applications.
"Today, the Consumer Financial Protection Bureau (CFPB) issued guidance about certain legal requirements that lenders must adhere to when using artificial intelligence and other complex models," said the regulator on Sept. 19 via its official press release.
CFPB explained that by using AI tools, creditors can't deny credit or take adverse actions. This includes pointing out customers' purchasing histories when denying their credit applications.
What the CFPB wants from creditors is for them to rely on specific behaviors of customers. The agency said lenders should do this even if it upsets or angers credit applicants.
The regulatory agency further stated that lenders should provide more specific reasons when making credit denials so that applicants can make better decisions. Doing this will also protect consumers from discrimination.
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Creditors Using AI Increase in Numbers
Yera Dominguez receives a credit card from a customer for payment at Lorenzo's Italian Market on May 20, 2009 in Miami, Florida. Members of Congress today passed a bill placing new restrictions on companies that issues credit.
CFPB Director Rohit Chopra said that artificial intelligence is expanding the data used for lending decisions. Because of this, AI is now becoming one of the major factors affecting credit denial decisions of lenders. CFPB claims that more and more creditors rely on artificial intelligence and other predictive decision-making technologies.
The agency added that lenders usually input vast amounts of information into these complex algorithms. The large datasets they use include data collected from consumer surveillance. CFPB is concerned about this habit of lenders today because it can result in credit denials for reasons irrelevant to consumers' finances.
The latest guidance of CFPB is expected to prevent lenders from using too much AI and other similar systems. If you want to learn more about this credit regulation, you can click this link.
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