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With the growing use of advanced algorithms and personal consumer data in credit underwriting, the reasons for adverse credit actions have become more diverse. Lenders often rely on complex algorithms and AI technologies to make predictive decisions in their underwriting models - and these algorithms are fed with large datasets, sometimes including data obtained from consumer surveillance. Consequently, consumers may be denied credit based on reasons that they may not consider relevant to their financial situation.
“The law gives every applicant the right to a specific explanation if their application for credit was denied, and that right is not diminished simply because a company uses a complex algorithm that it doesn’t understand,” CFPB Director Rohit Chopra said at the time.
