top of page
  • Frank Tian

CFPB on Black-Box Models

Your model is complicated,

But you still need to explain it.

That is the latest reminder from CFPB.


ECOA mandates lenders to explain adverse actions, such as:

  • Refusal of a credit line increase

  • The decline of a credit application

  • Credit line decrease

  • Account closure


The classic-method scorecards are able to identify the main contributing factors

And provide the score reason codes and corresponding verbiage.


Some of the latest algorithm-based models are literally black boxes.

Even the developers cannot explain what drives the output.


There is no change in the rule here.

Just reminders on the explainability mandate.


“Federal consumer financial protection laws and adverse action requirements should be enforced regardless of the technology used by creditors.“


“Creditors cannot justify noncompliance with ECOA based on the mere fact that the technology they use to evaluate credit applications is too complicated, too opaque in its decision-making, or too new.”


Recent Posts

See All

Payment Companies in Regulators’ Scope

🇺🇸 US CFPB recently reminded consumers that funds parked in payment apps are not subject to deposit insurance. The growth of non-bank payment companies naturally lead to consumer funds parking in th

💸Check-kiting - Live and Large

In the 2002 movie “Catch Me If You Can”, Leonardo DiCaprio played a top con man who defrauded many banks with fake checks - that was in the 1960s. Six decades later, the check fraud is still live and

Risk Manager - A Thankless Job

Had SVB not failed, nobody would notice the absence of their top risk manager in 2022. This perfectly illustrates the role of risk and control staff. When things went well (or when it seemed so), nobo

Commenti


bottom of page