Frights and Financial Regulations: Compliance Updates for Spooky Season

Frights and Financial Regulations Compliance Updates for Spooky Season Informed

In honor of Halloween, the scariest holiday of the year, Compliance Corner presents some spooky observations about financial regulations.

  • Friendly Ghosts:  Lenders considering using large language models like ChatGPT,  LaMDA, or Llama, must contend with the very real challenge of hallucinations. An AI hallucination occurs when an AI model presents incorrect information as if it were fact.  Generative AI models create “hallucinations” because they are trained to provide answers even when they don’t know the answer.  Hallucinations raise challenges for lenders who intend to use these models for high stakes decisions. The large scale deployment of generative AI by the financial services industry depends on lenders figuring out how to scare away these ghosts by distinguishing between what is real and not real. Sadly, AI hallucinations do not just appear on Halloween.
  • Web crawlers: Financial data aggregators historically have used web bots to screen scrape consumers’ financial accounts in the absence of data agreements with lenders. The CFPB’s proposed Personal Financial Data Rights Rule would require banks to create a developer interface for authorized third parties, likely reducing this practice. But don’t expect screen scraping to disappear.  With the emergence of LLMs, there is still a demand for web crawlers collecting data.
  • Monster masks: Financial institutions face an ever-present and constantly evolving threat of fraud. Some fraudsters use false information to create synthetic identities in the same way that Dr. Frankenstein built his monster. They grab bits and pieces of people’s identity information – one person’s SSN, another’s address, and a third’s birth date – to create an entirely new, plausible identity.  Informed’s AI models can help detect these fakes with a high level of effectiveness. We have libraries of income and bank statement templates, and hundreds of thousands of real documents which we can use to model and detect these identity masks and costumes. 
  • Tricks: The FTC and the CFPB  have recently targeted a variety of disparate charges by lenders and service providers that they label “junk fees.” It’s impossible to find one single definition of junk fees. According to the CFPB, junk fees can “take many different forms, including fees for late penalties, overdrafts, returns, using an out-of-network ATM, money transfers, inactivity, and more. In many cases the fees are mysterious and can leave an individual unsure of the purpose.” Well, what some consumers and the CFPB consider junk fees, other consumers may consider to be useful and valuable products. This campaign against junk fees has left many companies confused as to whether the services they offer will be considered tricks or treats, and whether the CFPB is protecting consumers, or simply trying to impose its own judgment on the products financial service providers can offer.
  • And (finally) Treats: Informed is excited about the growth and evolution of our company, products and services. For the past seven years we have worked to leverage AI to improve the lending process for lenders and consumers. Earlier this week we announced a new toolset called Dealer Verify enabling auto dealers to clear stips faster.

We are steadily making progress towards our vision of automating the lending ecosystem and expanding access to credit.  We remain committed to helping our clients board more loans faster, while reducing fraud and risk. And we have a robust partner ecosystem with value-added fintechs and consultancies. This week we announced a new partnership with Lender Compliance Technologies (LCT).

Stay tuned for the many product announcements and advances to come. From all of us at Informed, we hope you have a Happy Halloween.  May your treats be many, and your tricks few and funny.

author avatar
Tom Oscherwitz VP of Legal
Tom Oscherwitz is Informed’s VP of Legal and Regulatory Advisor.  He has over 25 years of experience as a senior government regulator (CFPB, U.S. Senate) and as a fintech legal executive working at the intersection of consumer data, analytics, and regulatory policy.

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