CFPB Mandates Additional Specificity In Adverse Action Communications Based On AI Or Complex Credit Models

On September 19, 2023, the Consumer Financial Protection Bureau (CFPB) issued Circular 2023-03 to provide creditors additional guidance for communicating denials of credit to consumers based upon artificial intelligence (AI) or complex credit models. The circular makes clear that it is insufficient for a creditor utilizing such models to satisfy their obligation under the Equal Credit Opportunity Act (ECOA) and Regulation B by relying on codified sample adverse action notice forms if the forms do not accurately indicate the principal reason for the denial. The circular also provides that creditors may not rely on overly broad statements of denial to the extent that such statements obscure the specific and accurate reasons for the credit decision.