What US Consumer Financial Protection Bureau - Consumer Financial Protection Circular 2023-03 (September 19, 2023): Adverse Action Notification Requirements and the Proper Use of the CFPB's Sample Forms Provided in Regulation B; AI/Algorithmic Credit Decisioning Has No Special Exemption requires
Consumer Financial Protection Circular 2023-03, 'Adverse action notification requirements and the proper use of the CFPB's sample forms provided in Regulation B', was issued on September 19, 2023 by the United States Consumer Financial Protection Bureau (CFPB). The Circular addresses creditors' obligations under the Equal Credit Opportunity Act (ECOA) and Regulation B (12 CFR 1002.9) when issuing adverse action notices, with specific application to credit decisions made or supported by complex algorithms and artificial intelligence. The core holding is twofold. First: 'Creditors that simply select the closest factors from the checklist of sample reasons are not in compliance with the law if those reasons do not sufficiently reflect the actual reason for the action taken' - meaning the CFPB's sample forms in Regulation B are not safe harbours for any creditor that would have to substantively misdescribe the actual basis to fit the sample. Second: 'There is no special exemption for artificial intelligence' - meaning AI/algorithmic credit decisioning is fully within ECOA and Regulation B scope and creditors using such systems must disclose the specific reasons for adverse action even where the underlying model uses inputs that the consumer might not intuitively associate with credit. The Circular states: 'Creditors must disclose the specific reasons, even if consumers may be surprised, upset, or angered to learn their credit applications were being graded on data that may not intuitively relate to their finances.' The Circular thus closes off two creditor defences that had emerged with AI credit-decisioning expansion - (a) reliance on the sample-form checklist as a safe harbour and (b) assertions that AI complexity makes specific-reason disclosure infeasible. The Circular is consequential for fintech lenders, traditional creditors deploying AI underwriting/pricing, and BNPL providers. (The CFPB Circular series provides advisory opinions to staff and the public on consumer financial law; Circulars are persuasive authority and inform CFPB enforcement priorities.)
Pillar: Banking & Global Finance · Authority: United States Consumer Financial Protection Bureau (CFPB) - established under Title X of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010; issues Consumer Financial Protection Circulars to address consumer financial law issues for staff and the public · Version: 1.0.0 · Last updated:
Primary source: https://www.consumerfinance.gov/about-us/newsroom/cfpb-issues-guidance-on-credit-denials-by-lenders-using-artificial-intelligence/
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Primary Citations — 7 traced to source
- Consumer Financial Protection Circular 2023-03 - 'Adverse action notification requirements and the proper use of the CFPB's sample forms provided in Regulation B', issued September 19, 2023 by the US Consumer Financial Protection Bureau
- CFPB Circular 2023-03 - core sample-form holding: 'Creditors that simply select the closest factors from the checklist of sample reasons are not in compliance with the law if those reasons do not sufficiently reflect the actual reason for the action taken.'
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