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CFPB headquarters. CFPB headquarters. (Source: Shutterstock)

The CFPB reminded lenders Thursday that per the Equal Credit Opportunity Act (ECOA), denying a loan application or taking another adverse action against an applicant must be followed with an explanation to the applicant as to why they were denied or the action was taken – even if the lender used advanced algorithms to make the credit decision.

The reminder was published in the CFPB’s latest Consumer Financial Protection Circular, which contain policy statements and are released periodically to advise parties with authority to enforce federal consumer financial law. It was issued at a time when a growing number of lenders, including credit unions, are turning to artificial intelligence-based technology as an option for evaluating loan applicants (this process is sometimes referred to as a “black-box” credit decisioning model). The CFPB warned that if the technology does not inform lenders of the specific reasons behind a denial or other adverse action, they will not be able to comply with the federal discrimination law.

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Natasha Chilingerian

Natasha Chilingerian has worked in the credit union space for over a decade. She joined CU Times as managing editor in 2015 and was promoted to executive editor in 2019. Before that, she served as a communications specialist for Xceed Financial Credit Union (now Kinecta Federal Credit Union) in Los Angeles from 2013-2015, and as a CU Times freelancer from 2011-2013. She has been a professional writer and editor for more than 17 years, specializing in news and lifestyle journalism as well as marketing copywriting for companies in the finance and technology space.

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