Artificial intelligence (AI) is set to revolutionize finance and housing, bringing both game-changing benefits and thorny new risks that demand vigilant oversight, a bipartisan House panel has concluded.
The House Financial Services Committee’s AI Working Group, established in January by Chairman Patrick McHenry, R-N.C., and Ranking Member Maxine Waters, D-Calif., examined AI’s impact on finance through a series of roundtables with regulators, market participants and consumer advocates.
In a report released Thursday (July 18), the group highlighted AI’s potential to expand access to credit, enhance fraud detection and improve customer service. However, it also warned of challenges around data privacy, potential bias in algorithmic decision-making and the need to ensure AI systems comply with existing laws.
“As consumers and businesses increasingly look to leverage AI, it is critical that lawmakers and regulators keep pace,” McHenry said in a news release. “This report represents a bipartisan effort to understand the benefits, and potential risks, of artificial intelligence in the financial services and housing industries. It also highlights the need for proper oversight and consumer protections that address the growing number of use cases for artificial intelligence.”
The report comes as financial firms increasingly experiment with advanced AI capabilities, including generative AI systems like ChatGPT. While many institutions have used traditional machine learning models for years, newer AI technologies are opening up novel applications.
Expanding Credit Access
The AI Working Group held six roundtables to explore how the finance industry is using AI. Regulators told the group that AI could lead to bias and discrimination that might be harder to spot. They stressed that firms using AI must still follow anti-discrimination laws. The Consumer Financial Protection Bureau said if a lender can’t explain why AI denied a loan, it’s breaking the law.
According to participants in the roundtables, banks and investment firms are cautiously adopting AI, especially for public-facing tasks. Many have used machine learning for years to crunch data. Now, they’re testing newer AI to help with research, watch for market issues and improve trading. But there are risks. Too many firms using similar AI models could cause herd-like market behavior.
In housing and insurance, AI is changing how companies work. It’s helping to approve loans and insurance, screen renters, serve customers better and analyze data.
For example, AI underwriting models have shown promise in approving more borrowers from underserved communities in mortgage lending. One company reported a 177% increase in loan approvals for Black applicants using AI-based underwriting.
However, the working group also heard concerns that AI could perpetuate or even exacerbate historical biases in lending if it is not carefully designed and monitored. Consumer…
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