Artificial intelligence (AI) is poised to affect every aspect of the world economy and play a significant role in the global financial system, leading financial regulators around the world to take various steps to address the impact of AI on their areas of responsibility. The economic risks of AI to the financial systems include everything from the potential for consumer and institutional fraud to algorithmic discrimination and AI-enabled cybersecurity risks. The impacts of AI on consumers, banks, nonbank financial institutions, and the financial system’s stability are all concerns to be investigated and potentially addressed by regulators.
It is the goal of Perficient’s Financial Services consultants to help financial services executives, whether they lead banks, bank branches, bank holding companies, broker-dealers, financial advisors, insurance companies or investment management firms, the knowledge to know the status of AI regulation and the risk and regulatory trend of AI regulation not only in the US, but around the world where their firms are likely to have investment and trading operations.
CFPB
On June 24, 20024 the Consumer Financial Protection Bureau (CFPB) approved a new rule to address the current and future applications of complex algorithms and artificial intelligence used to estimate the value of a home.
As noted by the CFPB, when buying or selling a home, an accurate home valuation is critical. Mortgage lenders use this collateral valuation to determine how much they will lend on a property. On popular real estate websites, many people even track their own home’s value generated from these AI-driven appraisal tools.
The CFPB rule requires companies that use these algorithmic appraisal tools to:
- put safeguards into place to ensure a high level of confidence in the home value estimates;
- protect against the manipulation of data;
- avoid conflicts of interest; and
- comply with applicable nondiscrimination laws.
In addition to their own rule, the CFPB highlighted to the OCC in the latter’s 2024 Request for Information discussed below a number of CFPB publications and guidance documents regarding consumer protection issues that may be implicated by the use of AI, including:
- Chatbots
- Chatbots and other automated customer service technologies built on large language models may:
- provide inaccurate information and increase risk of unfair, deceptive, and abusive acts and practices in violation of the Consumer Financial Protection Act (CFPA);
- fail to recognize when consumers invoke statutory rights under Regulation E and Regulation Z; and
- raise privacy and security risks, resulting in increased compliance risk for institutions.
- Lenders are prohibited against discrimination and must meet the requirement to provide consumers with information regarding adverse action taken against them, as required pursuant to the Equal Credit Opportunity Act (ECOA). The CFPB noted that courts have already held that an institution’s decision to use AI as an automated decision-making tools can itself be a policy that produces bias under the disparate impact theory of liability.
- Fraud screening. The Comment stresses that the use of fraud screening tools, such as those offered by third-party vendors that generate fraud risk services, must be offered in compliance with ECOA and the CFPA. In addition, because such screening is often used to assess creditworthiness by determining who gets offered or approved for a financial product or at a special rate, institutions that compile and provide such information are therefore likely subject to the requirements of the Fair Credit Reporting Act.
- Chatbots and other automated customer service technologies built on large language models may:
