Lenders Beware: Generative AI is already Impacting Auto Lending Compliance

Lenders Beware Generative AI is already Impacting Auto Lending Compliance Informed

Auto lenders, like leaders in other business sectors, are grappling with the current wave of excitement over generative AI. Many of us have already seen a coworker or vendor pitch a generative AI use case. The safe bet is that this technology will bring big changes to auto lending.

Compliance Risks

From our perspective, this AI “Gold Rush” will have an equivalent impact on the compliance landscape. First, like any new technology, generative AI has its own risks. These include: copyright and IP infringement, discrimination, fraud, and privacy violations. When companies deploy generative models, compliance teams must monitor these emerging risks.

But, there is a second less obvious compliance change coming – regulators shifting priorities. Even if your company is conservative about using generative AI, you must recognize that regulators are redeploying their finite resources to address the technology. And this redeployment intensely focuses on issues of bias, discrimination and unfairness.

CFPB Focus

The recent CFPB Fair Lending Report published on June 29 is an example of the shift. Every year, the CFPB publishes this statutorily required report on its enforcement of federal fair lending laws. The current report’s discussion of future CFPB activities states the CFPB is, “focused on increased use of advanced and emerging technologies in financial services.” 

The report adds that the CFPB,  “is increasing its expertise in data science and analytics in order to identify fair lending violations at each stage of the credit lifecycle and hold creditors and service providers accountable for fully complying with fair lending and other federal consumer financial laws, regardless of the technology they choose to use.”

So, the CFPB will devote more money, resources and attention and scrutinize how lenders’ services contribute to discrimination. The CFPB and other regulators’ “ Interagency Enforcement Policy Statement on Artificial Intelligence” has AI is in the crosshairs.

Director Chopra noted “unchecked AI poses threats to fairness and to our civil rights in ways that are already being felt.” And, there is “no exemption in our nation’s civil rights laws for new technologies that engage in unlawful discrimination. Companies must take responsibility for their use of these tools.”

Bottom Line

What does this regulatory focus on AI mean for auto lenders?  It means more scrutiny of your lending operations for unfairness and discrimination, whether you use AI or not.  In particular, take note of the CFPB’s statement that it intends to look for risks across the lending cycle. The regulators aren’t just looking at how you approve loans. They’re watching your advertising and application process, collections, and the sale and administration of ancillary products in your deal jackets.

On the positive side, some AI risks can be monitored and mitigated. Informed helps clients counter perceived risks of AI with tools and compliance dashboards. Stay tuned as we share more about the compliance tools we offer. Can’t wait? Contact us today to learn more.

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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