Banking

CFPB to loan providers: Algorithms, AI utilized in credit choices should be explainable

In a brand-new circular provided today, the CFPB stated that under the Equal Credit Opportunity Act and Regulation B, lenders are not allowed to utilize intricate algorithms in credit decision-making if doing so indicates they are not able to offer “the specific and accurate reasons for adverse actions.” Under ECOA and Reg B, lenders are needed to offer such factors to any candidate versus whom negative action is taken.

“Whether a creditor is using a sophisticated machine learning algorithm or more conventional methods to evaluate an application, the legal requirement is the same: Creditors must be able to provide applicants against whom adverse action is taken with an accurate statement of reasons,” that specify and suggest the primary factors for the negative action, the CFPB stated in the circular, including that “a creditor cannot justify noncompliance with ECOA and Regulation B’s requirements based on the mere fact that the technology it employs to evaluate applications is too complicated or opaque to understand.”

Gabriel

A news media journalist always on the go, I've been published in major publications including VICE, The Atlantic, and TIME.

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