cfpb adverse action reasons

Contact ABA. the material on FederalRegister.gov is accurately displayed, consistent with I), sec. [6]See https://www.consumerfinance.gov/about-us/blog/innovation-spotlight-providing-adverse-action-notices-when-using-ai-ml-models/ 12 CFR Part 1002 Equal Credit Opportunity (Regulation B); Revocations or Unfavorable Changes to the Terms of Existing Credit Arrangements AGENCY: Bureau of Consumer Financial Protection. 362 F.3d 971, 977-78 (7th Cir. Creditors should also establish and maintain a strong fair lending program[12] and model risk management framework,[13] leveraging industry standards and practices, to ensure models are appropriately onboarded, validated, and monitored. Finally, the CFPBs big data and discrimination concerns may overlap, but they are not identical. Consumer Financial Protection Circulars While machines crunching numbers might seem capable of taking human bias out of the equation, thats not what is happening. In 2017, as part of a field hearing on alternative data, the CFPB issued a request for information in part to explore whether reliance on some types of alternative data could result in discrimination, whether inadvertent or otherwise, against certain consumers.. provide legal notice to the public or judicial notice to the courts. C), comment 4 (emphasis added). 1691(d)(3). [4]See Innovation spotlight: Providing adverse action notices when using AI/ML models | Consumer Financial Protection Bureau (consumerfinance.gov). B. While every effort has been made to ensure that Washington, DC 20036 they [will] effectively be discouraged' from discriminatory practices.[11] The CFPB has filed an amicus brief in the U.S. Court of Appeals for the Second Circuit in a private lawsuit brought by a group of eight Black and Hispanic plaintiffs who alleged that the named . 5552(b) (consultation with CFPB by State attorneys general and regulators); 12 U.S.C. American Bankers Association The adverse action notice requirements of ECOA and Regulation B, however, apply equally to all credit decisions, regardless of the technology used to make them. This prototype edition of the Each document posted on the site includes a link to the legal research should verify their results against an official edition of Auto loan servicers and dealerships may want to review their SCRA policies and procedures to ensure they comply with the law and provide the requisite protection for active military members prior to repossessing collateral. DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations. Many companies who develop or market these decision-making models to financial institutions consider the technology to be proprietary information, providing users with little insight into how, or on what basis, outputs are delivered. 1691(d)(2)(A); 12 CFR 1002.9(b)(2). Director, Consumer Financial Protection Bureau. In its press release about the new Circular, the CFPB renews its December 2021 call for tech workers to act as whistleblowers to report potential discrimination arising from the use of algorithms and other technologies. Register (ACFR) issues a regulation granting it official legal status. satisfy the notice requirement by simply checking the closest identifiable factor listed.[8] May 27, 2022 Federal Issues CFPB Consumer Finance Agency Rule-Making & Guidance ECOA Regulation B Consumer Credit On May 26, the CFPB released Circular 2022-03 to reiterate creditors' adverse action notice requirements under ECOA. are not part of the published document itself. [8] In 2021, Director Chopra again foreshadowed, [a]lgorithms can help remove bias, but black box underwriting algorithms are not creating a more equal playing field and only exacerbate the biases fed into them.[9], CFPB CONFIRMS THAT SPECIFIC REASONS FOR ADVERSE ACTION ARE REQUIRED, REGARDLESS OF THE TECHNOLOGY USED In Director Chopras April 2022 Congressional testimony, he said: The outsized influence of such dominant tech conglomerates over the financial services ecosystem comes with risks and raises a host of questions about privacy, fraud, discrimination, and more.. The CFPB, however, has since added a disclaimer to that 2020 blog post, warning that it "conveys an incomplete description of the adverse action notice requirements of ECOA and Regulation B" and that ECOA does "not permit creditors to use technology for which they cannot provide accurate reasons for adverse actions," referring readers . 12 CFR 1002.9(b)(2) (emphasis added); About Consumer Financial Protection Circulars, https://www.federalregister.gov/d/2022-12729, MODS: Government Publishing Office metadata. Consumer Financial Protection Circulars Her 2020 blog post evoked a spirit more accommodating of innovation by industry participants and experimentation with AI models, citing ECOA[5] in acknowledging that the existing regulatory framework has built-in flexibility that can be compatible with AI algorithms.[6], The CFPB, however, has since added a disclaimer to that 2020 blog post, warning that it conveys an incomplete description of the adverse action notice requirements of ECOA and Regulation B and that ECOA does not permit creditors to use technology for which they cannot provide accurate reasons for adverse actions, referring readers instead to the Circular. Regulation B explains that [s]tatements that the adverse action was based on the creditor's internal standards or policies or that the applicant, joint applicant, or similar party failed to achieve a qualifying score on the creditor's credit scoring system are insufficient.[6] 2004) (quoting 4 Pursuant to Regulation B, a statement of reasons for adverse action taken "must be specific and indicate the principal reason(s . Continuing a recent trend of highlighting potential unfair and deceptive acts or practices (UDAAP) within the auto loan servicing industry, theConsumer Financial Protection Bureau(CFPB) recently issued a new blog post focusing on the Servicemembers Civil Relief Act (SCRA). 5. "GuLbg$(Z[i@;3dpl6&B}4~\uTdHX `W{,(IzNa"x^Br5eTYA'ROG.RSK~#I`QdokBT|se'&c^IN%Q1!_/3Tj1 yK9;42-;};Ry#B}1ROvJoEI|7] The CFPB recently published a blog post about the agency's on-going efforts to monitor industry updates and innovation and how these changes align with regulatory obligations under the CFPB's consumer protection laws. The OCC has a long history of recognizing the value of these institutions, and we will continue our efforts to ensure they remain a bedrock of financial access and inclusion.. Many companies who develop or market these decision-making models to financial institutions consider the technology to be proprietary information, providing users with little insight into how, or on what basis, outputs are delivered. Consumer Financial Protection Circulars About the Federal Register [1] To promote transparency and fairness in the credit underwriting process, ECOA requires creditors taking adverse action against consumers to provide consumers with a written statement that indicates the specific, principal reason(s) for the adverse action. In 2020, the CFPB blogged that Regulation B's flexibility can be compatible with AI algorithms, because "although a creditor must provide the specific reasons for an adverse action a creditor need not describe how or why a disclosed factor adversely affected an application," how a factor relates to creditworthiness, or use any . ADVERSE ACTION If you take adverse action against a consumer based on information in a consumer report, you must tell the consumer. 11. The Consumer Financial Protection Bureau (CFPB) has been contemplating data, algorithms, and machine learning for years. The CFPB cited adverse action violations in an enforcement action in September 2021, and in an amicus brief and advisory opinion in December 2021 and May 2022, respectively, argued that adverse action and other Regulation B and Equal Credit Opportunity Act protections apply to an "applicant" throughout the credit cycleand have since 1974. It revised its Unfair, Deceptive, or Abusive Acts or Practices (UDAAP) Supervision and Examination Manual accordingly, in part directing examiners to document the use of models, algorithms, and decision-making processes used in connection with consumer financial products and services. Under Regulation B, the statement must be specific and indicate the principal reason(s) for the adverse action. As stated in the Circular, a creditor cannot justify noncompliance with ECOA and Regulation Bs adverse action notification requirements based on the mere fact that the technology it employs to evaluate applications is too complicated or opaque to understand. 5 U.S.C. . As part of a program it created last month, it drafted the adverse action circular concerning routine disclosure processes that, at the least, will cause very careful consideration of the use of credit decision algorithms; and it also drafted two advisory opinions and the start of an algorithmic appraisal valuation rule. [3] The CFPB has also represented that it hopes to facilitate the use of this promising technology [AI/ML] to expand access to credit and benefit consumers.[4] This support and these aspirations contrast starkly with the ominous tone of the CFPBs recent Circular, especially when juxtaposing its tone with that of a CFPB blog post published in 2020 during the prior administration by Patrice Alexander Ficklin, Director of the CFPBs Office of Fair Lending. It is not a defense that the technology used to make the determination is too . Previously, the CFPB has appeared supportive of AI, machine learning, and the use of alternative data in expanding consumers access credit. Podcast: Banking-as-a-service business models under pressure? 12 CFR part 1002 (supp. [12] [4], Pursuant to Regulation B, a statement of reasons for adverse action taken must be In particular, the CFPB will be sharpening its focus on digital redlining and algorithmic bias. He discussed the Consumer Financial Protection Bureau's (CFPB) forward-thinking approach. S. Rep. 94-589, 94th Cong., 2d Sess., at 4, 15 U.S.C. see also id. This document has been published in the Federal Register. In a blog issued the same day, the CFPB said that new manifestations of discrimination, embedded within systems and technologies, harm communities even where such acts are not visible, and that the CFPB would focus on the widespread and growing reliance on machine learning models throughout the financial industry and their potential for perpetuating biased outcomes.. Financial Protection Bureau (CFPB). [8]See Prepared Remarks of Commissioner Rohit Chopra at FTC Hearings on Competition and Consumer Protection, George Mason University, Antonin Scalia Law School - October 15, 2018; Comment of Commissioner Chopra on the Department of Housing and Urban Developments Proposed Rule Regarding the Fair Housing Acts Discriminatory Effects Standard - October 16, 2019 (ftc.gov); Prepared Remarks of Commissioner Rohit Chopra at Silicon Flatirons Conference (ftc.gov); Remarks of Director Rohit Chopra at a Joint DOJ, CFPB, and OCC Press Conference on the Trustmark National Bank Enforcement Action | Consumer Financial Protection Bureau (consumerfinance.gov). Some algorithms and credit models employ machine learning, which may effectively change the creditworthiness standards or reinforce biases in the model over time. servicing portfolios. As a result of being informed of the specific reasons for the adverse action, consumers can take steps to try to improve their credit status or, in cases where the creditor may have acted on misinformation or inadequate information[,] . edition of the Federal Register. see also While we all know technology can create innovative products that benefit consumers, we also know the dangers technology can foster, like black box algorithms perpetuating digital redlining and discrimination in mortgage underwriting. Moreover, while appendix C of Regulation B includes sample forms intended for use in notifying an applicant that adverse action has been taken, [i]f the reasons listed on the forms are not the factors actually used, a creditor will fair lending laws, and adverse action disclosure requirements are not new. see also S. Rep. 94-589, 94th Cong., 2d Sess., at 4, Form C-5 is a notice of disclosure of the right to request specific reasons for adverse action under 1002.9(a)(1) and . informational resource until the Administrative Committee of the Federal Her 2020 blog post evoked a spirit more accommodating of innovation by industry participants and experimentation with AI models, citing ECOA[5] in acknowledging that the existing regulatory framework has built-in flexibility that can be compatible with AI algorithms.[6], The CFPB, however, has since added a disclaimer to that 2020 blog post, warning that it conveys an incomplete description of the adverse action notice requirements of ECOA and Regulation B and that ECOA does not permit creditors to use technology for which they cannot provide accurate reasons for adverse actions, referring readers instead to the Circular. 1. It is not an official legal edition of the Federal If you require this document in an alternative electronic format, please contact In addition, Congress also believed ECOA's notice requirement would have a beneficial competitive effect on the credit marketplace.[14]. The FCRA also requires a creditor to disclose, as applicable, a credit score it used in taking adverse action along with related information, including up to four key factors that adversely affected the consumer's credit score (or up to five factors if the number of inquiries made with respect to that consumer report is a key factor). [9], ECOA's notice requirements were designed to fulfill the twin goals of consumer protection and education.[10] Adverse action[s] include denying an application for credit, terminating an existing credit account, making unfavorable changes to the terms of an existing account, and refusing to increase a credit limit. Written By ESR News Blog Editor Thomas Ahearn. Register documents. U~ _rels/.rels ( J@4ED$Tw-j|zszz*X%(v6O{PI But the CFPB also noted that it has bolstered staffing resources as advanced algorithmic technologies such as AI are increasingly used throughout the entire life cycle of financial services products. Previously, the CFPB has appeared supportive of AI, machine learning, and the use of alternative data in expanding consumers access credit. They are a critical source of credit to support the financial needs and economic vitality of their communities. . The CFPB emphasized that its amicus program provides courts with its views and helps ensure that consumer financial protection statutes are correctly and consistently interpreted., CFPBs Data Broker Probe Hints At Potential Rule Expansion, CFPB Proposes Databases Highlighting UDAAP Judgments, Form Contract Provisions, Rohit Chopra is cracking down on big banks and Big Tech and business groups claim hes out of control, Future of Minority Depository Institutions, CFPB zeros in on Servicemembers Civil Relief Act, OCC Reports Quarterly Improvement in Mortgage Performance, Powersports and the CFPB: Fair lending, fees, repossessions, and voluntary products, CFPB Update on the Amicus Program and Other Litigation, UDAAP) Supervision and Examination Manual. [1] To promote transparency and fairness in the credit underwriting process, ECOA requires creditors taking adverse action against consumers to provide consumers with a written statement that indicates the specific, principal reason(s) for the adverse action. 1691(a). For specific recommendations on how to mitigate your compliance risk in light of the CFPBs recent focus on black-box models and algorithms, or if you would like additional information about any of the issues discussed in this client alert, please contact Natasha Dempsey, Josh Burlingham, Kimberly Monty Holzel, Tony Alexis, Thomas M. Hefferon, or the Goodwin lawyer with whom you typically consult. 9(b)(1)-2. . [12]See 201510_cfpb_ecoa-narrative-and-procedures.pdf (consumerfinance.gov). 1691(a); 12 CFR 1002.1(b). Id. vS" word/_rels/document.xml.rels ( j0Ei))l[UaI[}E C6{W#J&`]o4#y0u[F>'8h`dG $Gu#L(R3;/mK.x%s Rh&5i^;XPsh^4GP#zfvy rM,EIer8J?!q:di}!43LYK_1[98A/ PK ! The CFPB's annual fair lending report covering its 2019 activities is scheduled to be published in tomorrow's Federal Register. Creditors who use complex algorithms, including artificial intelligence or machine learning, sometimes referred to as uninterpretable or black-box models, may not be able to accurately identify the specific reasons for denying credit or taking other adverse actions, the CFPB said, which is not a cognizable defense against liability.. are intended to promote consistency in approach across the various enforcement agencies and parties, pursuant to the CFPB's statutory objective to ensure Federal consumer financial law is enforced consistently. official commentary provides that in giving specific reasons for adverse action, "a creditor need not describe how or why a disclosed factor adversely affected an application, or, for credit scoring systems . In accompanying remarks, Director Chopra stated that: When background screening companies and their algorithms carelessly assign a false identity to applicants for jobs and housing, they are breaking the law.. Gateway Chevrolet Oldsmobile, Inc., If you are using public inspection listings for legal research, you C), comment 3. Technology companies and financial institutions are amassing massive amounts of data and using it to make more and more decisions about our lives, including loan underwriting and advertising. The CFPB regularly enforces (and supervises and writes rules regarding, etc.) [2] This repetition of headings to form internal navigation links should verify the contents of the documents against a final, official 1. %G,cDYiXk]Kfua)RpJC:zCo0tVtkK>n [1]15 U.S.C. Your request for [a loan/a credit card/an increase in your credit limit] was carefully considered, and we regret that we are unable to approve your application at this time, for the following reason(s): On December 21, 2011, the CFPB restated FCRA regulations under its authority at 12 CFR Part 1-800-BANKERS (800-226-5377) | www.aba.com Also in November, in comments to the CFPBs Consumer Advisory Board, Deputy Director Martinez said: We know one of the main risks currently emerging is that of Big Techs entry into consumer markets, including consumer reporting. Big tech platforms, with their vast consumer surveillance and data harvesting infrastructure, have the potential to undermine fairness and competition. Indeed, vast troves of sensitive data available about consumers that institutions using more traditional methods would never have used in a credit decisioning context are now fueling highly complex, black box algorithms.. electronic version on GPOs govinfo.gov. The CFPB Director is instructing CFPB staff as described herein, and the CFPB will then make final decisions on individual matters based on an assessment of the factual record, applicable law, and factors relevant to prosecutorial discretion. 1983); to rectify the mistake.[13] in "Rohit Chopra is cracking down on big banks and Big Tech and business groups claim hes out of control". In a January 2022 blog post regarding religious discrimination, the CFPB said: Were particularly concerned about how financial institutions might be making use of artificial intelligence and other algorithmic decision tools. [3]See CFPB Announces First No-Action Letter to Upstart Network | Consumer Financial Protection Bureau (consumerfinance.gov). 5511(b)(4). A Rule by the Consumer Financial Protection Bureau on 06/14/2022. Currency, the Board of Governors of the Federal Reserve System, and the National Credit Union Administration. CFPB_Accessibility@cfpb.gov. v. Enforcers, and the broader public, can provide feedback and comments to 15 U.S.C. In comments regarding the Interagency Task Forces report on Property Appraisal and Valuation Equity, CFPB Director Chopra stated that: [We] will be working to implement a dormant authority in federal law to ensure that algorithmic valuations are fair and accurate. Rather, the circular explains that the use of algorithmic models in credit decisioning violates ECOA and Regulation B if creditors are unable to articulate a specific reason for taking adverse action. ex ante PK ! Disclosing the key factors that adversely affected the consumer's credit score does not satisfy the ECOA requirement to disclose specific reasons for denying or taking other adverse action on an application or extension of credit.). [11]See CFPB Acts to Protect the Public from Black-Box Credit Models Using Complex Algorithms | Consumer Financial Protection Bureau (consumerfinance.gov). reprinted in It also encouraged creditors to use the CFPBs No-Action Letter or Compliance Assistance Sandbox policies to reduce potential uncertainty. Learn more here. 8. 9(b)(1)-4. These technologies can help intentional and unintentional discrimination burrow into our decision-making systems, and whistleblowers can help ensure that these technologies are applied in law-abiding ways.. Gross Revenues of $1 Million or Less. It may go without saying, but this is a good time for creditors to evaluate their adverse action notices and practices. Treadway See CFPB Announces First No-Action Letter to Upstart Network | Consumer Financial Protection Bureau (consumerfinance.gov), Innovation spotlight: Providing adverse action notices when using AI/ML models | Consumer Financial Protection Bureau (consumerfinance.gov), https://www.consumerfinance.gov/about-us/blog/innovation-spotlight-providing-adverse-action-notices-when-using-ai-ml-models/, https://www.consumerfinance.gov/about-us/blog/innovation-spotlight-providing-adverse-action-notices-when-using-ai-ml-modelshttps://www.consumerfinance.gov/about-us/blog/innovation-spotlight-providing-adverse-action-notices-when-using-ai-ml-models/, Prepared Remarks of Commissioner Rohit Chopra at FTC Hearings on Competition and Consumer Protection, George Mason University, Antonin Scalia Law School - October 15, 2018; Comment of Commissioner Chopra on the Department of Housing and Urban Developments Proposed Rule Regarding the Fair Housing Acts Discriminatory Effects Standard - October 16, 2019 (ftc.gov); Prepared Remarks of Commissioner Rohit Chopra at Silicon Flatirons Conference (ftc.gov); Remarks of Director Rohit Chopra at a Joint DOJ, CFPB, and OCC Press Conference on the Trustmark National Bank Enforcement Action | Consumer Financial Protection Bureau (consumerfinance.gov), Remarks of Director Rohit Chopra at a Joint DOJ, CFPB, and OCC Press Conference on the Trustmark National Bank Enforcement Action | Consumer Financial Protection Bureau (consumerfinance.gov), Consumer Financial Protection Circular 2022-03: Adverse action notification requirements in connection with credit decisions based on complex algorithms | Consumer Financial Protection Bureau (consumerfinance.gov), CFPB Acts to Protect the Public from Black-Box Credit Models Using Complex Algorithms | Consumer Financial Protection Bureau (consumerfinance.gov), 201510_cfpb_ecoa-narrative-and-procedures.pdf (consumerfinance.gov), SR 11-7 attachment: Supervisory Guidance on Model Risk Management (federalreserve.gov); OCC 2011-12: Sound Practices for Model Risk Management: Supervisory Guidance on Model Risk Management (treas.gov); fil17022.pdf (fdic.gov); The Fed - SR 21-8: Interagency Statement on Model Risk Management for Bank Systems Supporting Bank Secrecy Act/Anti-Money Laundering Compliance (federalreserve.gov), New York Insurance Regulator Sets Sights on Private Equity Investments, Texas Securities Sheriff Wrangles Metaverse Gamblers, SEC Proposes Expanded and Accelerated Cybersecurity Disclosure by Public Companies. 1691(d)(2)(A), (B); Register, and does not replace the official print version or the official . 9. [13]See SR 11-7 attachment: Supervisory Guidance on Model Risk Management (federalreserve.gov); OCC 2011-12: Sound Practices for Model Risk Management: Supervisory Guidance on Model Risk Management (treas.gov); fil17022.pdf (fdic.gov); The Fed - SR 21-8: Interagency Statement on Model Risk Management for Bank Systems Supporting Bank Secrecy Act/Anti-Money Laundering Compliance (federalreserve.gov).
Center For Learning Tuition, Arcam Av41 For Sale Usa, Get Post Featured Image Wordpress, Excuses To Go Out Strict Parents, Articles C