CFPB Terminates No-Action Letter at Company’s Request

On June 8, 2022, the CFPB issued an order terminating the No-Action Letter issued to an online lending platform that uses unconventional borrower data to make credit and pricing decisions in offering personal loans to consumers with limited credit or work history. For details regarding the issuance of the original No-Action Letter, refer to WBK’s previous article here.

In a public statement accompanying the termination, the CFPB noted that “[the] terms of the 2020 ‘no-action letter’ required [the company] to notify the CFPB of significant changes to its ‘artificial intelligence’ model prior to their implementation.”  Additionally, “[the] CFPB needed sufficient time to review and rigorously evaluate the implications of the changes to [the company’s] model.”

The order to terminate the No-Action Letter also highlighted that the CFPB has not endorsed the company’s model, but there is a risk that the public could misconstrue the No-Action Letter to suggest that the CFPB concluded the model complies with ECOA.  The CFPB has not performed the analysis necessary to conclude whether the model does or does not violate the ECOA. Due to such risk of confusion, the CFPB would need to take more time to responsibly sustain the No-Action Letter. Meaning, the company “has correctly identified that this review would prevent them from making quick business decisions with regard to its model.”

The company requested to terminate its No-Action Letter because it would like to make changes to its AI model without needing the CFPB’s review and approval. With the technological field constantly changing and advancing, the company would need to make time-sensitive business decisions to keep up with the market that the No-Action Letter, in effect, does not allow.