ICYMI: At Hearing, Senator Warren Reiterates Importance of CFPB to Enforce Existing Safeguards, Protect Consumers Amid Potential Harms from AI in Financial Services
Warren: “Breaking the law with fancy new tools is still breaking the law… There is no ‘AI exception’ to our consumer protection laws. ”
Washington, D.C. — Today, at a hearing of the Senate Committee on Banking, Housing, and Urban Affairs, U.S. Senator Elizabeth Warren (D-Mass.) questioned Melissa Koide, Director and CEO of FinRegLab, about the existing authority of financial regulators like the Consumer Financial Protection Bureau (CFPB) to protect consumers from risks posed by Artificial Intelligence (A.I.). Senator Warren praised the CFPB for acting quickly to address risks such as lenders using A.I. to produce biased home appraisals or banks using A.I.-powered chatbots that may give consumers misleading financial information.
Transcript: Artificial Intelligence in Financial Services
U.S. Senate Committee on Banking, Housing, and Urban Affairs
Wednesday, September 20, 2023
Senator Warren: Thank you, Mr. Chairman.
Artificial intelligence or “AI” is getting a lot of attention in Washington. You know, the Tech Giants have come to tell us how to shape new laws that will advance their business models.
But laws already exist governing some aspects of AI. Earlier this year, the Consumer Financial Protection Bureau reminded us that “existing legal authorities apply to the use of…innovative technologies just as they apply to other practices.” In other words, breaking the law with fancy new tools is still breaking the law.
I want to talk about one of those laws today. A biased home appraisal can be a terrible financial blow to a family. One study of mortgage approval algorithms showed that in 2019 lenders were 80 percent more likely to deny home loans to Black applicants than to White applicants with similar financial characteristics. In June, the CFPB proposed a rule that would require mortgage lenders to have quality controls in place that would ensure that the algorithms that appraise home loans aren’t discriminatory.
Ms. Koide, you’re an expert in consumer protection and financial inclusion. Does CFPB have the legal authority to implement such a rule?
Melissa Koide: Thank you, Senator Warren. I join you completely in the importance of access to homeownership. It is a wealth building opportunity. Yes, I do agree that the CFPB does have authorities. You are correct. There has been research by the Urban Institute, Fannie Mae, Freddie Mac have also both recently found home appraisals systemically undervalue homes in majority Black neighborhoods. The CFPB, both under the Fair Housing Act and the Equal Credit Opportunity Act, are able to cover the appraisals as reflected by federal regulatory guidance, which dates back all the way to 1994.
Senator Warren: I think what this says is the lender cannot discriminate and then claim AI made me do it.
Melissa Koide: Absolutely.
Senator Warren: The lender remains legally responsible for outcomes that violate the law. Is that right?
Melissa Koide: That’s correct.
Senator Warren: Similarly, the Equal Credit Opportunity Act—which you just referenced, and it’s current law—says that when lenders decide who gets credit and who doesn’t, they can’t discriminate on the basis of age, race, sex, national origin, religion, family status, or use of public assistance—and that’s true whether they do it face-to-face or they do it through AI.
Ms. Koide, has the CFPB identified other potential violations of consumer protection laws involving AI?
Melissa Koide: So again, the consumer protection laws are in place and agnostic on whether or not it is complex technology that’s being used or a human decision. They do have the authorities to take action around discriminatory behaviors as such.
Senator Warren: In other words, the Bureau is saying that big banks like Wells Fargo will be held responsible if they use AI to cut costs and, as a result, end up misleading consumers who are just trying to resolve a dispute with the bank or ask for advice on some of the most critical financial decisions of their lives. Good for the CFPB. There is no “AI exception” to our consumer protection laws.
This is another example of why the CFPB’s work is so essential. Over the past 13 years, the CFPB has returned $17 billion directly to American families that have been cheated by financial institutions – money that otherwise would have stayed in the pockets of those Wall Street executives.
I’m proud of the work the CFPB has achieved and I look forward to working with my colleagues to support their work in the future.
Thank you, Mr. Chairman.
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