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  • Writer's pictureKarl Oppenheimer

Financial Watchdog Ensures AI Accountability Amid Growing Concerns

Amid mounting concerns regarding the increasing influence of powerful AI systems like ChatGPT, the nation's financial watchdog is taking action to ensure that companies adhere to the law in their use of AI. Automated systems and algorithms already play a significant role in determining credit ratings, loan terms, bank fees, and various aspects of financial life, impacting areas such as hiring, housing, and working conditions.

Ben Winters, Senior Counsel for the Electronic Privacy Information Center, applauded a joint enforcement statement released by federal agencies last month as a positive initial step. He emphasized that there's a misconception that AI is entirely unregulated and stressed that using AI to make decisions does not exempt companies from responsibility for the consequences of those decisions. Regulators are actively monitoring the situation.

Over the past year, the Consumer Finance Protection Bureau has imposed fines on banks for mismanaging automated systems that led to wrongful home foreclosures, car repossessions, and lost benefit payments due to reliance on faulty technology and algorithms. Regulators are sending a clear message that there will be no "AI exemptions" to consumer protection.

Consumer Finance Protection Bureau Director Rohit Chopra stated that the agency is strengthening its capabilities by hiring data scientists and technologists to confront the challenges posed by AI and identify potentially illegal activities.

Multiple federal agencies, including the Federal Trade Commission, the Equal Employment Opportunity Commission, and the Department of Justice, are allocating resources and personnel to address the negative impacts of new technology on consumers.

Regulators emphasize that companies must understand how their AI systems make decisions. In cases where AI decisions are too opaque to explain, they argue that such algorithms should not be used. This is particularly relevant under regulations like the Fair Credit Reporting Act and Equal Credit Opportunity Act, which require financial providers to explain adverse credit decisions, extending to housing and employment decisions.

Consumer Finance Protection Bureau Director Chopra dispelled the misconception that handing decisions to AI eliminates discrimination, highlighting that biases can be ingrained in the data.

EEOC Chair Charlotte Burrows emphasized that enforcement actions will target AI hiring technology that screens out job applicants with disabilities and "bossware" that unlawfully surveils workers. Additionally, regulators are concerned that algorithms may dictate work conditions in violation of existing laws.

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