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  • 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.”

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