On May 26, the Consumer Financial Protection Bureau (the Bureau or CFPB) issued its third Circular, emphasizing that creditors must adhere to the Equal Credit Opportunity Act (ECOA) and Regulation B, even when they employ complex algorithms, sometimes referred to as uninterpretable or “black-box” models, to render credit decisions. The Circular explains that companies must provide an applicant with the precise reasons for the denial of a credit application or adverse action, even if the creditor company uses complex credit algorithm models that do not allow even the creditor itself to “accurately identify[] the specific reasons for denying credit or taking other adverse actions.”
CFPB Circular 2022-03: Complex Lending Algorithms Cannot Excuse Failure to Provide Specific, Principal Reasons for an Adverse Credit Determination
