CFPB Comments on Treasury RFI Regarding Artificial Intelligence in Finance; Also Says Credit Card Delinquencies can be Credited to Loosened Lending Standards

On August 13, the CFPB submitted a comment to the Treasury’s RFI regarding the uses, opportunities, and risks of artificial intelligence (AI) in the financial services sector (the Treasury’s RFI was covered by InfoBytes here). The CFPB focused on monitoring the market for consumer financial products and services to identify risks and ensure compliance with federal consumer financial protection laws. 

The CFPB noted the adoption of new technologies, including AI, in the consumer financial marketplace and underscored the importance of companies competing rather than “exploiting legal loopholes.” The Bureau also noted that firms must comply with consumer financial protection laws when adopting new technologies and that regulators will enforce existing rules to prevent consumer harm. The CFPB asserted that innovation was fostered by clear regulatory requirements that do not unfairly advantage incumbent businesses. 

Additionally, the CFPB highlighted its own efforts to ensure consistent treatment under the law for similar products and services, combat anticompetitive practices, and monitor the market. Finally, the CFPB said that while AI was a significant aspect of technological innovation in the financial sector, it would be crucial that innovation grows, and that growth occurs when firms have incentives to compete by lawfully offering the best products at the lowest prices. 

CFPB: Credit card delinquencies can be credited to loosened lending standards

On August 6, the CFPB published a blog post regarding a rise in credit card delinquencies since the Covid-19 pandemic. The Bureau reported an increase in credit scores and a decrease in credit card delinquencies during the pandemic because of pandemic aid and forced savings, whereas 2022 and 2023 exhibited an increase in delinquencies. The Bureau pointed to “loosened” lending standards during the pandemic as a key reason why credit card delinquencies were about two percentage points higher than in 2019. 

According to the blog post, credit cards originated in 2021, 2022 and 2023 became delinquent more rapidly than credit cards originated in previous years. Specifically, about 8 percent of credit cards in 2022 and 2023 became delinquent around two years after origination; in 2016, the same percentage of delinquency occurred after about four years. Furthermore, the CFPB referenced data from the Fed’s Senior Loan Officer Opinion Survey to support its claim that “new credit cards were opened for borrowers who were relatively riskier despite lenders saying they were tightening standards in 2020.” The post concluded that a small but “significant” portion of those riskier borrowers went delinquent soon after getting the card.