CFPB Requires Firms to Protect Consumers from Black-Box Algorithmic Credit Models

May 26, 2022

The Consumer Financial Protection Bureau has published new guidance warning financial institutions that they must provide “specific and accurate reasons” for credit application denials even when relying on “complex algorithms”—and that failing to do so violates the anti-discrimination requirements of the Equal Credit Opportunity Act. “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,” CFPB Director Rohit Chopra said in a statement. The Bureau explained that “Creditors who use complex algorithms—including artificial intelligence or machine learning technologies—to engage in credit decisions must still provide a notice that discloses the specific, principal reasons for taking adverse actions.”

CFPB’s announcement comes soon after the Equal Employment Opportunity Commission and Department of Justice’s Civil Rights Division issued guidance warning employers about disability discrimination facilitated by algorithms. EPIC advocates for robust regulation of AI and automated decisionmaking systems. EPIC has filed numerous consumer protection complaints targeting AI-based systems, including the facial recognition tools used by HireVue and online test proctoring companies.

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