On June 8, 2022, the CFPB issued an order ending a no-action letter to an online lending platform that uses unconventional borrower data to make credit and pricing decisions by offering personal loans to consumers with limited credit or work histories. For more details regarding the issuance of the original no-action letter, see WBK’s previous article here.
In a public statement accompanying the dismissal, the CFPB noted that “[the] terms of 2020 “no action letter” required [the company] notify the CFPB of significant changes to its “artificial intelligence” model before they are implemented. In addition, “[the] The CFPB needed sufficient time to rigorously review and assess the implications of the changes [the company’s] model.”
The order to end the no-action letter also pointed out that the CFPB did not approve the company’s model, but there is a risk that the public could misinterpret the no-action letter to suggest that the CFPB has concluded that the model is ECOA compliant. The CFPB has not performed the analysis necessary to conclude whether or not the model violates the ECOA. Because of such potential for confusion, the CFPB would need more time to responsibly maintain the no-action letter. This means that the company “correctly identified that this review would prevent it from making quick business decisions regarding its model.”
The company asked to end its no-action letter because it wanted to make changes to its AI model without needing CFPB review and approval. As the technology field is constantly changing and advancing, the company should make urgent business decisions to keep up with the market, which the no-action letter, in fact, does not allow.