CFPB looking for whistleblowers to report potential discrimination arising from the use of artificial intelligence

Ballard Spahr LLP
Contact

Ballard Spahr LLP

In their June 2021 request for information regarding financial institutions’ use of artificial intelligence (AI), including machine learning, the CFPB and federal banking regulators flagged fair lending concerns as one of the risks arising from the growing use of AI by financial institutions.

Last week, in an apparent effort to increase its scrutiny of machine learning models and those that use alternative data, the CFPB published a blog post titled “CFPB Calls Tech Workers to Action,” in which it made a direct appeal to “engineers, data scientists and others who have detailed knowledge of the algorithms and technologies used by companies and who know of potential discrimination or other misconduct within the CFPB’s authority to report it to us.”

In the blog post, the CFPB describes whistleblowing as “a tool to hold industry accountable” and observes that “[t]ech workers may have entered the field to change the world for the better, but then discover their work being misused or abused for unlawful ends.” It states that AI “can help intentional and unintentional discrimination burrow into our decision-making systems, and whistleblowers can help ensure that these technologies are applied in law-abiding ways.” The following scenario is provided as an example:

[W]hile algorithmic mortgage underwriting is sometimes hailed as a method to significantly reduce housing discrimination, and many of those designing the algorithms seek to create a fairer housing market, that’s not always how things work out. In a recent study of over 2 million mortgage applicants, researchers found discriminatory effects of these new technologies, as Black and Hispanic families have been more likely to be denied a mortgage compared to similarly situated white families.

One researcher described the situation as one where loan officers take applicant information, but algorithms make the decisions. Whether such a process removes or embeds discrimination depends on a number of factors, including the types of data collected, how they are weighted, and how decisions are reviewed.

Dodd-Frank Section 1057 protects whistleblowers who report alleged violations of the Consumer Financial Protection Act, any law subject to the jurisdiction of the CFPB, or any CFPB rule, from retaliation by their employers. These protections apply if the employee reports the alleged violations to the employer, the CFPB, or any other federal, state, or local government authority or law enforcement agency. However, Dodd-Frank does not currently provide financial incentives for whistleblowers who report such alleged violations. (In 2020, the Bureau proposed legislative language to amend Dodd-Frank to establish a program for whistleblowers to receive monetary awards.)

Given the lack of financial incentives for whistleblowers, we doubt that this direct appeal will bear much fruit for the Bureau. It does, however, underline the seriousness with which the Bureau has taken up criticisms of newer-technology underwriting methods, and highlights that financial institutions must be in a position to defend their models when they are inevitably scrutinized.

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Ballard Spahr LLP | Attorney Advertising

Written by:

Ballard Spahr LLP
Contact
more
less

Ballard Spahr LLP on:

Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide
- hide

This website uses cookies to improve user experience, track anonymous site usage, store authorization tokens and permit sharing on social media networks. By continuing to browse this website you accept the use of cookies. Click here to read more about how we use cookies.