CFPB: Using Complex Algorithms Is Not A Legal Defense For Discrimination

The Consumer Financial Protection Bureau recently warned companies that, under federal anti-discrimination laws, they still owe consumers an explanation of specific reasons for denying credit applications, even if they use complex algorithms to determine creditworthiness. The move is both a reminder of the agency's continued focus on anti-discrimination enforcement as well as the enduring responsibility of companies using new technology in consumer interactions.

On May 26, the agency published a circular confirming its position that creditors' adverse action notice requirements under the Equal Credit Opportunity Act apply when using artificial intelligence or other algorithm-based credit models-even if the company claims it does not fully understand how the technology it uses to make those decisions works. Beyond denied credit applications, adverse actions can include closing or changing the terms of an existing credit account or denying a request to increase credit