CFPB Warns Users Of Algorithms, AI, And Machine Learning Of Anti-Discrimination Compliance Requirements

Anti-discrimination law applies to companies with black-box credit models using complex algorithms, according to a circular issued by the Consumer Financial Protection Bureau (CFPB) on May 26, 2022. According to the CFPB, the anti-discrimination law requires companies to explain to applicants the specific reasons for denying an application for credit or taking other adverse actions, even if the creditor is relying on credit models using complex algorithms. In addition, the CFPB highlights creditors' adverse action notice requirements under the Equal Credit Opportunity Act (ECOA). This warning complements another recent CFPB announcement that it intends to use its general UDAAP authority to prosecute discrimination in any financial services category, whether it be banking (including deposits), servicing, collections, credit reporting, payments, or money transfers and remittances.