Source: Mondaq

The use of artificial intelligence (AI) in consumer lending is revolutionizing the financial services industry, but it also comes with significant risks. This article explores the legal and regulatory challenges that arise from using AI to assess creditworthiness, set interest rates, and make lending decisions. One of the key concerns is ensuring that AI systems do not introduce bias into lending practices, potentially leading to discriminatory outcomes.

Financial institutions are being urged to implement robust governance frameworks to oversee AI systems, ensuring that they comply with consumer protection laws and regulations such as the Dodd-Frank Act. Regular audits of AI systems are recommended to identify and mitigate potential biases, and lenders are encouraged to maintain transparency by explaining how AI algorithms make lending decisions.

The article also discusses the potential cybersecurity risks associated with AI in consumer lending, as well as the need for data privacy measures to protect sensitive consumer information. As AI continues to reshape the lending landscape, financial institutions must navigate these risks to avoid legal liabilities and ensure fair lending practices.