Consumer Financial Protection Circular 2022-03: Adverse Action Notification Requirements in Connection With Credit Decisions Based on Complex Algorithms

Publisher lists this guidance as withdrawn/rescinded: Consumer Financial Protection Circular 2022-03: Adverse Action Notification Requirements in Connection With Credit Decisions Based on Complex Algorithms, 87 FR 35864 (June 14, 2022); withdrawn on May 12, 2025 .

35864 Federal Register/ Vol. 87, No. 114 / Tuesday, June 14, 2022 / Rules and Regulations
Commission is adding a note to 11 CFR
109.10(e)(1) citing to the District Court
and Court of Appeals decisions relating
to this matter stating that the statutory
provision at 52 U.S.C. 30104(c) remains
in force.
The Commission is issuing this rule
as an interim final rule. This interim
final rule will take effect thirty
legislative days after its transmittal to
Congress. See 52 U.S.C. 30111(d). The
Commission welcomes public comment
on this interim final rule and may
address any comments received in a
later rulemaking.
The Administrative Procedure Act
(‘‘APA’’) requires an agency
promulgating regulations to publish a
notice of a proposed rulemaking in the
Federal Register. 5 U.S.C. 553(b). The
notice requirement does not apply,
however, ‘‘when the agency for good
cause finds (and incorporates the
finding and a brief statement of reasons
therefor in the rules issued) that notice
and public procedure thereon are
impracticable, unnecessary, or contrary
to the public interest.’’ 5 U.S.C.
553(b)(B). According to the APA’s
legislative history, a situation is
‘‘impracticable’’ when ‘‘the due and
required execution of the agency
functions would be unavoidably
prevented by its undertaking public
rule-making proceedings.’’ See
Administrative Procedure Act:
Legislative History, S. Doc. No. 248 79–
258 (1946); see also Attorney General’s
Manual on the Administrative
Procedure Act 15 (1947).
‘‘ ‘Unnecessary’ means unnecessary so
far as the public is concerned, as would
be the case if a minor or merely
technical amendment in which the
public is not particularly interested
were involved.’’ Id. ‘‘Contrary to the
public interest’’ connotes a situation in
which the interest of the public would
be defeated by any requirement of
advance notice. Id.
The notice to remove 11 CFR
109.10(e)(1)(vi) is unnecessary because
that regulatory provision that has
already been invalidated by a federal
court and cannot be enforced. 5 U.S.C.
553(b)(B). Removing this provision from
the regulations does not involve any
exercise of discretion by the
Commission. Moreover, because this
provision is already unenforceable, the
Commission’s action will not affect the
rights or interests of any person or
entity, nor could the public notice and
comment period benefit the
Commission in this rulemaking.
In addition, a notice and comment
period may be contrary to the public
interest. The Commission notes that the
2022 elections for federal office are
scheduled to take place on November 8,
2022. Although, as noted above, the
Commission previously issued guidance
on reporting requirements to the
regulated community, the fundamental
part of that guidance should be reflected
in the Commission’s regulation as soon
as possible before the general election.
In addition, because this interim final
rule is exempt from the notice and
comment procedure under 5 U.S.C.
553(b), the Commission is not required
to conduct a regulatory flexibility
analysis under 5 U.S.C. 603 and 604
(Regulatory Flexibility Act). See 5
U.S.C. 601(2) and 604(a).
List of Subjects in 11 CFR Part 109
Coordinated and independent
expenditures.
For the reasons set out in the
preamble, the Commission is amending
11 CFR part 109 as follows:
PART 109—COORDINATED AND
INDEPENDENT EXPENDITURES (52
U.S.C. 30101(17), 30116(a) AND (d),
AND PUBLIC LAW 107–155 SEC.
214(C))
■1. The authority citation for part 109
continues to read as follows:
Authority: 52 U.S.C. 30101(17), 30104(c),
30111(a)(8), 30116, 30120; Sec. 214(c), Pub.
L. 107–155, 116 Stat. 81.
■2. Section 109.10 is amended by
removing and reserving paragraph
(e)(1)(vi) and by adding a note to
paragraph (e)(1).
The addition reads as follows:
§ 109.10 How do political committees and
other persons report independent
expenditures?
* * * * *
(e) * * *
(1) * * *
Note to § 109.10(e)(1): On August 3, 2018,
the United States District Court for the
District of Columbia vacated 11 CFR
109.10(e)(1)(vi). CREW v. FEC, 316 F. Supp.
3d 349 (Aug. 3, 2018), aff’d, 971 F.3d 340
(D.C. Cir. 2020). Section 30104(c) of title 52
of the U.S. Code and the remaining
provisions of 11 CFR 109.10 remain in force.
* * * * *
Dated: June 8, 2022.
On behalf of the Commission,
Allen J. Dickerson,
Chairman, Federal Election Commission.
[FR Doc. 2022–12771 Filed 6–13–22; 8:45 am]
BILLING CODE 6715–01–P
BUREAU OF CONSUMER FINANCIAL
PROTECTION
12 CFR Part 1002
Consumer Financial Protection
Circular 2022–03: Adverse Action
Notification Requirements in
Connection With Credit Decisions
Based on Complex Algorithms
AGENCY: Bureau of Consumer Financial
Protection.
ACTION: Consumer financial protection
circular.
SUMMARY: The Consumer Financial
Protection Bureau (Bureau or CFPB) has
issued Consumer Financial Protection
Circular 2022–03, titled, ‘‘Adverse
Action Notification Requirements in
Connection with Credit Decisions Based
on Complex Algorithms.’’ In this
circular, the Bureau responds to the
question, ‘‘When creditors make credit
decisions based on complex algorithms
that prevent creditors from accurately
identifying the specific reasons for
denying credit or taking other adverse
actions, do these creditors need to
comply with the Equal Credit
Opportunity Act’s requirement to
provide a statement of specific reasons
to applicants against whom adverse
action is taken?’’
DATES: The Bureau released this circular
on its website on May 26, 2022.
ADDRESSES: Enforcers, and the broader
public, can provide feedback and
comments to Circulars@cfpb.gov.
FOR FURTHER INFORMATION CONTACT:
Christopher Davis, Attorney-Advisor,
Office of Fair Lending and Equal
Opportunity, at (202) 435–7000. If you
require this document in an alternative
electronic format, please contact CFPB_
Accessibility@cfpb.gov.
SUPPLEMENTARY INFORMATION:
Question Presented
When creditors make credit decisions
based on complex algorithms that
prevent creditors from accurately
identifying the specific reasons for
denying credit or taking other adverse
actions, do these creditors need to
comply with the Equal Credit
Opportunity Act’s (ECOA’s)
requirement to provide a statement of
specific reasons to applicants against
whom adverse action is taken?
Response
Yes. ECOA and Regulation B require
creditors to provide statements of
specific reasons to applicants against
whom adverse action is taken. Some
creditors may make credit decisions
based on certain complex algorithms,
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35865 Federal Register/ Vol. 87, No. 114 / Tuesday, June 14, 2022 / Rules and Regulations
1
While some creditors may rely upon various
post-hoc explanation methods, such explanations
approximate models and creditors must still be able
to validate the accuracy of those approximations,
which may not be possible with less interpretable
models.
2
15 U.S.C. 1691(a).
3
15 U.S.C. 1691(d)(2)(A), (B); see also 15 U.S.C.
1691(d)(3). A creditor may either provide the notice
or follow certain requirements to inform consumers
on how to obtain such notice. 15 U.S.C.
1691(d)(2)(B).
4
12 CFR 1002.2(c).
5
12 CFR 1002.9(b)(2) (emphasis added); see also
12 CFR part 1002 (supp. I), sec. 1002.9, para.
9(b)(2)–9 (‘‘The Fair Credit Reporting Act (FCRA)
requires a creditor to disclose when it has based its
decision in whole or in part on information from
a source other than the applicant or its own
files.... The FCRA also requires a creditor to
disclose, as applicable, a credit score it used in
taking adverse action along with related
information, including up to four key factors that
adversely affected the consumer’s credit score (or
up to five factors if the number of inquiries made
with respect to that consumer report is a key factor).
Disclosing the key factors that adversely affected
the consumer’s credit score does not satisfy the
ECOA requirement to disclose specific reasons for
denying or taking other adverse action on an
application or extension of credit.’’).
6
12 CFR 1002.9(b)(2).
7
12 CFR part 1002 (supp. I), sec. 1002.9, para.
9(b)(1)–2. A creditor, however, ‘‘need not describe
how or why a factor adversely affected an
applicant.’’ 12 CFR part 1002 (supp. I), sec. 1002.9,
para. 9(b)(1)–3.
8
12 CFR part 1002 (app. C), comment 4
(emphasis added). The sample forms are illustrative
and may not be appropriate for all creditors. If a
creditor chooses to use the checklist of reasons
provided in one of the sample forms and if reasons
commonly used by the creditor are not provided on
the form, the creditor should modify the checklist
by substituting or adding other reasons. 12 CFR part
1002 (app. C), comment 3.
9
12 CFR part 1002 (supp. I), sec. 1002.9, para.
9(b)(1)–4.
10
Fischl v. Gen. Motors Acceptance Corp., 708
F.2d 143, 146 (5th Cir. 1983); see also id. (calling
these provisions ‘‘[p]erhaps the most significant of
the 1976 amendments to the ECOA’’).
11
Treadway v. Gateway Chevrolet Oldsmobile,
Inc., 362 F.3d 971, 977–78 (7th Cir. 2004) (quoting
Fischl, 708 F.2d at 146); see also S. Rep. 94–589,
94th Cong., 2d Sess., at 4, reprinted in 1976
U.S.S.C.A.N. 403, 406 (calling the notice
requirement ‘‘a strong and necessary adjunct to the
antidiscrimination purpose of the legislation’’).
12
S. Rep. 94–589, 94th Cong., 2d Sess., at 4,
reprinted in 1976 U.S.S.C.A.N. 403, 406.
13
Id.
14
S. Rep. No. 94–589, at 4, 7 (1976).
15
15 U.S.C. 1691(d)(2)(A), (B); 12 CFR
1002.9(a)(2)(i), (ii).
16
12 CFR 1002.9(b)(2).
sometimes referred to as uninterpretable
or ‘‘black-box’’ models, that make it
difficult—if not impossible—to
accurately identify the specific reasons
for denying credit or taking other
adverse actions.
1
The adverse action
notice requirements of ECOA and
Regulation B, however, apply equally to
all credit decisions, regardless of the
technology used to make them. Thus,
ECOA and Regulation B do not permit
creditors to use complex algorithms
when doing so means they cannot
provide the specific and accurate
reasons for adverse actions.
Analysis
ECOA makes it unlawful for any
creditor to discriminate against any
applicant, with respect to any aspect of
a credit transaction, on the basis of race,
color, religion, national origin, sex or
marital status, age (provided the
applicant has the capacity to contract),
because all or part of the applicant’s
income derives from any public
assistance program, or because the
applicant has in good faith exercised
any right under the Consumer Credit
Protection Act.
2
In addition, ECOA
provides that a creditor must provide a
statement of specific reasons in writing
to applicants against whom adverse
action is taken.
3
‘‘Adverse action[s]’’
include denying an application for
credit, terminating an existing credit
account, making unfavorable changes to
the terms of an existing account, and
refusing to increase a credit limit.
4

Pursuant to Regulation B, a statement
of reasons for adverse action taken
‘‘must be specific and indicate the
principal reason(s) for the adverse
action.’’
5
Regulation B explains that
‘‘[s]tatements that the adverse action
was based on the creditor’s internal
standards or policies or that the
applicant, joint applicant, or similar
party failed to achieve a qualifying score
on the creditor’s credit scoring system
are insufficient.’’
6
The Official
Interpretations to Regulation B explain
that ‘‘[t]he specific reasons disclosed
. . . must relate to and accurately
describe the factors actually considered
or scored by a creditor.’’
7
Moreover,
while appendix C of Regulation B
includes sample forms intended for use
in notifying an applicant that adverse
action has been taken, ‘‘[i]f the reasons
listed on the forms are not the factors
actually used, a creditor will not satisfy
the notice requirement by simply
checking the closest identifiable factor
listed.’’
8
With respect to adverse actions
based on a credit scoring system
specifically, the Official Interpretations
explain that—
[T]he reasons disclosed must relate only to
those factors actually scored in the system.
Moreover, no factor that was a principal
reason for adverse action may be excluded
from disclosure. The creditor must disclose
the actual reasons for denial (for example,
‘‘age of automobile’’) even if the relationship
of that factor to predicting creditworthiness
may not be clear to the applicant.
9

ECOA’s notice requirements ‘‘were
designed to fulfill the twin goals of
consumer protection and education.’’
10

In terms of consumer protection, ‘‘the
notice requirement is intended to
prevent discrimination ex ante because
‘if creditors know they must explain
their decisions . . . they [will]
effectively be discouraged’ from
discriminatory practices.’’
11
The notice
requirement ‘‘fulfills a broader need’’ as
well by educating consumers about the
reasons for the creditor’s action.
12
As a
result of being informed of the specific
reasons for the adverse action,
consumers can take steps to try to
improve their credit status or, in cases
‘‘where the creditor may have acted on
misinformation or inadequate
information[,] . . . to rectify the
mistake.’’
13
In addition, Congress also
believed ECOA’s notice requirement
would have ‘‘a beneficial competitive
effect on the credit marketplace.’’
14

Creditors who use complex
algorithms, including artificial
intelligence or machine learning, in any
aspect of their credit decisions must still
provide a notice that discloses the
specific principal reasons for taking an
adverse action. Whether a creditor is
using a sophisticated machine learning
algorithm or more conventional
methods to evaluate an application, the
legal requirement is the same: Creditors
must be able to provide applicants
against whom adverse action is taken
with an accurate statement of reasons.
15

The statement of reasons ‘‘must be
specific and indicate the principal
reason(s) for the adverse action.’’
16
A
creditor cannot justify noncompliance
with ECOA and Regulation B’s
requirements based on the mere fact that
the technology it employs to evaluate
applications is too complicated or
opaque to understand. A creditor’s lack
of understanding of its own methods is
therefore not a cognizable defense
against liability for violating ECOA and
Regulation B’s requirements.
About Consumer Financial Protection
Circulars
Consumer Financial Protection
Circulars are issued to all parties with
authority to enforce Federal consumer
financial law. The CFPB is the principal
Federal regulator responsible for
administering Federal consumer
financial law, see 12 U.S.C. 5511,
including the Consumer Financial
Protection Act’s prohibition on unfair,
deceptive, and abusive acts or practices,
12 U.S.C. 5536(a)(1)(B), and 18 other
‘‘enumerated consumer laws,’’ 12 U.S.C.
5481(12). However, these laws are also
enforced by State attorneys general and
State regulators, 12 U.S.C. 5552, and
prudential regulators including the
Federal Deposit Insurance Corporation,
the Office of the Comptroller of the
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35866 Federal Register/ Vol. 87, No. 114 / Tuesday, June 14, 2022 / Rules and Regulations
1
See 12 U.S.C. 5481(12), (14), 5511.
2
See 12 U.S.C. 4301–4313; 12 CFR pt. 1030;
CFPB Exam Handbook, at TISA 1, https://
files.consumerfinance.gov/f/documents/cfpb_
supervision-and-examination-manual.pdf.
3
See 15 U.S.C. 1693–1693r; 12 CFR pt. 1005;
CFPB Exam Handbook, at EFTA 1, https://
files.consumerfinance.gov/f/documents/cfpb_
supervision-and-examination-manual.pdf.
4
See 12 U.S.C. 1831t(b)–(f); 12 CFR pt. 1009.
5
See 12 U.S.C. 5531, 5536; CFPB Exam
Handbook, at UDAAP 1, https://files.consumer
finance.gov/f/documents/cfpb_supervision-and-
examination-manual.pdf.
6
Additionally, accounts at federally insured
credit unions are insured through the National
Credit Union Share Insurance Fund (NCUSIF). See
NCUA, How Your Accounts are Federally Insured
(Feb. 2018), https://www.ncua.gov/files/
publications/guides-manuals/NCUAHowYourAcct
Insured.pdf.
7
See FDIC, Your Insured Deposits, at 3 (Jan.
2020), https://www.fdic.gov/resources/deposit-
insurance/brochures/documents/your-insured-
deposits-english.pdf.
Currency, the Board of Governors of the
Federal Reserve System, and the
National Credit Union Administration.
See, e.g., 12 U.S.C. 5516(d), 5581(c)(2)
(exclusive enforcement authority for
banks and credit unions with $10
billion or less in assets). Some Federal
consumer financial laws are also
enforceable by other Federal agencies,
including the Department of Justice and
the Federal Trade Commission, the
Farm Credit Administration, the
Department of Transportation, and the
Department of Agriculture. In addition,
some of these laws provide for private
enforcement.
Consumer Financial Protection
Circulars are intended to promote
consistency in approach across the
various enforcement agencies and
parties, pursuant to the CFPB’s statutory
objective to ensure Federal consumer
financial law is enforced consistently.
12 U.S.C. 5511(b)(4).
Consumer Financial Protection
Circulars are also intended to provide
transparency to partner agencies
regarding the CFPB’s intended approach
when cooperating in enforcement
actions. See, e.g., 12 U.S.C. 5552(b)
(consultation with CFPB by State
attorneys general and regulators); 12
U.S.C. 5562(a) (joint investigatory work
between CFPB and other agencies).
Consumer Financial Protection
Circulars are general statements of
policy under the Administrative
Procedure Act. 5 U.S.C. 553(b). They
provide background information about
applicable law, articulate considerations
relevant to the Bureau’s exercise of its
authorities, and, in the interest of
maintaining consistency, advise other
parties with authority to enforce Federal
consumer financial law. They do not
restrict the Bureau’s exercise of its
authorities, impose any legal
requirements on external parties, or
create or confer any rights on external
parties that could be enforceable in any
administrative or civil proceeding. The
CFPB Director is instructing CFPB staff
as described herein, and the CFPB will
then make final decisions on individual
matters based on an assessment of the
factual record, applicable law, and
factors relevant to prosecutorial
discretion.
Rohit Chopra,
Director, Consumer Financial Protection
Bureau.
[FR Doc. 2022–12729 Filed 6–13–22; 8:45 am]
BILLING CODE 4810–AM–P
BUREAU OF CONSUMER FINANCIAL
PROTECTION
12 CFR Chapter X
Consumer Financial Protection
Circular 2022–02: Deceptive
Representations Involving the FDIC’s
Name or Logo or Deposit Insurance
AGENCY: Bureau of Consumer Financial
Protection.
ACTION: Consumer financial protection
circular.
SUMMARY: The Consumer Financial
Protection Bureau (Bureau or CFPB) has
issued Consumer Financial Protection
Circular 2022–02, titled, ‘‘Deceptive
representations Involving the FDIC’s
Name or Logo or Deposit Insurance.’’ In
this circular, the Bureau responds to the
question, ‘‘When do representations
involving the name or logo of the
Federal Deposit Insurance Corporation
(FDIC) or about deposit insurance
constitute a deceptive act or practice in
violation of the Consumer Financial
Protection Act (CFPA)? ’’
DATES: The Bureau released this circular
on its website on May 17, 2022.
ADDRESSES: Enforcers, and the broader
public, can provide feedback and
comments to Circulars@cfpb.gov.
FOR FURTHER INFORMATION CONTACT: Brad
Lipton, Senior Counsel, Legal Division,
at (202) 435–7700. If you require this
document in an alternative electronic
format, please contact CFPB_
Accessibility@cfpb.gov.
SUPPLEMENTARY INFORMATION:
Question Presented
When do representations involving
the name or logo of the Federal Deposit
Insurance Corporation (FDIC) or about
deposit insurance constitute a deceptive
act or practice in violation of the
Consumer Financial Protection Act
(CFPA)?
Response
Covered persons or service providers
likely violate the CFPA’s prohibition on
deception if they misuse the name or
logo of the FDIC or engage in false
advertising or make misrepresentations
to consumers about deposit insurance,
regardless of whether such conduct
(including the misrepresentation of
insured status) is engaged in knowingly.
Representations about deposit insurance
may be particularly relevant with
respect to new financial products or
services, especially those involving new
technologies such as digital assets,
including crypto-assets.
Analysis
The Bureau administers a number of
laws and regulations relating to the
offering or providing of deposit
accounts, including these provisions:
1

•The Truth in Savings Act and its
implementing regulation (Regulation
DD), which enable consumers to make
informed decisions about their accounts
at depository institutions through the
use of uniform disclosures;
2

•The Electronic Fund Transfer Act
and its implementing regulation
(Regulation E), which protect consumers
engaging in electronic fund transfers
and remittance transfers;
3

•Portions of the Federal Deposit
Insurance Act (FDI Act) and its
implementing regulations, which
require depository institutions lacking
Federal deposit insurance to make
certain disclosures;
4

•The CFPA, which, among other
things, prohibits unfair, deceptive, or
abusive acts or practices.
5

Deposit insurance has long been a
means to promote confidence in the
banking system. The most common form
of deposit insurance is administered by
the Federal Deposit Insurance
Corporation (FDIC).
6
The FDIC insures
deposits at FDIC-insured banks and
savings associations up to the maximum
deposit insurance amount, currently
$250,000, per depositor, per FDIC-
insured bank, for each account
ownership category.
7

Representations about deposit
insurance may be particularly relevant
with respect to new financial products
or services, especially those involving
new technologies such as digital assets,
including crypto assets. New
technologies may yield significant
benefits for consumers, workers, and
small businesses. Nonetheless,
especially with respect to new
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