CFPB cracks down on ‘black-box’ algorithms used for credit underwriting
The CFPB Thursday highlighted that federal 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. Along with this announcement, the bureau also published a Consumer Financial Protection Circular to remind the public of creditors' adverse action notice requirements under the Equal Credit Opportunity Act (ECOA).
In general, the circular communicates a standard of explainability for these models in the context of providing adverse action notices to consumers. The circular states that "creditors must be able to provide applicants against whom adverse action is taken with an accurate statement of reasons." In addition, the statement of reasons "must be specific and indicate the principal reason(s) for the adverse action."
“Companies are not absolved of their legal responsibilities when they let a black-box model make lending decisions,” said CFPB Director Rohit Chopra. “The law gives every applicant the right to a specific explanation if their application for credit was denied, and that right is not diminished simply because a company uses a complex algorithm that it doesn’t understand.”
Of note, in response to a request for information regarding credit unions' use of artificial intelligence (AI) issued by federal financial regulators – including the NCUA – NAFCU submitted comments detailing how credit unions leverage AI and noted that “credit unions are committed to pursuing responsible innovation, but to meaningfully pursue AI and ML technologies requires a supervisory approach that does not add to already high examination burden.
“AI can help credit unions expand access to high-quality credit among lower-income populations,” wrote NAFCU Senior Counsel for Research and Policy Andrew Morris, who also cautioned that in the context of probing the inner-workings of underwriting tools, a supervisory approach that “necessitates a deconstruction of AI-driven models to satisfy regulatory curiosity will be unsustainable for all but the largest and most sophisticated financial technology companies.”
NAFCU will continue to monitor this topic and update credit unions on the latest from the bureau via NAFCU Today.
Add to Calendar 2022-12-01 14:00:00 2022-12-01 14:00:00 More Benefit, Less Burden from Your Risk Assessment Process About the Webinar Let’s talk Risk Assessment! Did you just cringe at those two words? As industry professionals, we get it. For many credit unions, risk assessment seems like a compulsory, tedious task. As you prepare for 2023, consider how you can change your mindset to appreciate the value in the risk assessment process. We’ll convince you that risk assessment is actually a beneficial exercise that can support and improve your credit union’s cyber readiness and compliance efforts. Are you ready to reevaluate your approach? Join us for our webinar, “More Benefit, Less Burden from Your Risk Assessment Process,” on Thursday, December 1, at 2:00 pm EST to learn more about the benefits of a proactive approach to risk assessment, including: Better conveying your program’s successes to internal and external audiences Strengthening decision-making and prioritization of initiatives Proactively pivoting to focus on new high-risk areas Consistent scoring and application of control profiles enterprise-wide Seamless portrayal of how internal controls support mitigating controls Robust audit trail proving how risk and internal control scores have evolved Improving how examiners view your institution’s risk culture Watch the Webinar On-Demand Web NAFCU firstname.lastname@example.org America/New_York public
Add to Calendar 2022-12-01 14:00:00 2022-12-01 14:00:00 Dealing with Difficult Members: 5 Foolproof Techniques Dealing with difficult people is an unfortunate byproduct of the financial services industry. From the teller line to the call center, on up to collections--working with borrowers who are confused, angry and looking for somebody to blame--is a daily occurrence. Frontline staff need to develop a thick skin and a solutions-oriented tool kit to work through these challenging interactions. We need to remember that the members are not always expressing frustration with the institution. Their ire is most often tied to external events or other triggers. But at the end of the day, we must find a way to meet their needs with as little emotional trauma as possible. Fortunately, in this Dealing with Difficult Members: 5 Foolproof Techniques webinar, you’ll learn that there are methods you can utilize to focus on a positive outcome and work through most situations. Anger is a natural emotion and one which is almost universally experienced. Rather than return anger for anger or lose a good customer, why not try to build a better interaction? Key Takeaways Discover how to develop listening strategies Review common anger triggers Learn de-escalation techniques Purchase Now$295 Members | $395 Nonmembers(Additional $50 for USB)One registration gives your entire team access to the live webinar and on-demand recording until December 1, 2023.Go to the Online Training Center to access the webinar after purchase » Who Should Attend Presidents/CEOs COOs Branch managers Operations staff titles HR staff Education Credits This webinar doesn't qualify for any continuing education credits recognized by NAFCU or NASBA. About Our Webinars Our webinars are streamed live from NAFCU headquarters near Washington, DC. Your audio/video feed of the presenters includes presentation slides and downloadable handouts. You can easily submit your questions to the presenters at any time during the live broadcast, with no dialing over the phone! The audio and video stream directly through your computer. Web NAFCU email@example.com America/New_York public
Get daily updates.
Subscribe to NAFCU today.