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Credit denials based on artificial intelligence

On Behalf of | Dec 3, 2023 | Credit Repair

The Consumer Financial Protection Bureau (CFPB) has provided guidance on specific legal requirements, such as how lenders can use artificial intelligence and various other models. This guidance states that lenders need to give accurate reasons that are specific as to why they are taking adverse actions towards consumers.

An issue of over-reliance on forms and models

Artificial intelligence and other data-focused models are a great tool in many industries. However, they can be harmful if the professionals in charge of making big decisions regarding credit issues rely on them too heavily. This is especially the case when it comes to creditors assessing applications for credit.

The CFPB says that creditors must avoid using sample adverse action checklists and forms when making their decisions to deny credit or change conditions. Even though there are advanced algorithms that work with personal consumer data for this purpose, it is necessary to provide accurate and thorough reasons for a denial. Giving consumers something to work with can help them have a better chance at getting credit in the future and protect them from illegal discrimination.

Use of consumer surveillance

Consumer surveillance is a big part of what’s wrong with current strategies that many creditors use, and it leads to credit denial that is not based on reasons that are relevant to finances. Another issue is that some are using a checklist and just checking off boxes instead of providing more detailed responses with their denial notices. Because the Equal Credit Opportunity Act doesn’t let creditors just check boxes with adverse action notices, you may be able to take action, especially if you have evidence you have faced discrimination of some kind.

A credit application should be looked over with care and taken seriously. It can be helpful to sit down and talk to a creditor and have an in-depth conversation, so they can make a fully informed decision about whether to extend an offer of credit.