The Consumer Finance Protection Bureau recently issued Circular 2023-03 reminding creditors of the requirements under the Equal Credit Opportunity Act and Regulation B regarding adverse action notices. The Circular summarizes the regulatory provisions that a notice of credit denial provided to a consumer must be specific and state the principal reasons for denial of credit for that particular consumer. The Circular homes in on certain risks in using algorithms or predictive decision-making technology (artificial intelligence) to make credit decisions.   

Purpose of Adverse Action Notices

CFPB reiterates two principal purposes of an adverse action notice. First, notice of credit denial is “a tool to prevent and identify discrimination” by requiring creditors to explain their credit decisions. Second, the notice is “a key educational tool” for a consumer to take steps to address his or her credit status or correct errors made by creditors.

The Circular provides various examples of non-compliance, including using an unmodified checklist of reasons provided in the CFPB sample forms if those reasons do not accurately indicate the creditors’ actual reasons for denial. Additionally, stating that the reason for denial is “failure to satisfy the creditor’s policy” is considered too ambiguous, and therefore non-compliant.   

Risks of Non-Compliance When Using Artificial Intelligence to Make Credit Decisions

The Circular points out creditors’ responsibility to ensure that algorithms or predictive decision-making technology comply with regulatory requirements including those prohibiting illegal discrimination. In order to ensure that the consumer is fully informed, creditors must be vigilant in understanding the actual reasons for a credit denial generated by artificial intelligence and diligent in clearly and accurately stating those reasons. The Circular includes examples such as if the artificial intelligence generated a denial of a credit application due to an consumer’s profession, a statement that the consumer had “insufficient projected income” or “income insufficient for amount of credit requested” would likely not be a sufficiently specific reason.

You can access the Circular at Consumer Financial Protection Circular 2023-03: Adverse action notification requirements and the proper use of the CFPB’s sample forms provided in Regulation B | Consumer Financial Protection Bureau (

If you are a consumer with questions regarding a recent credit denial notice or a creditor seeking additional guidance on the regulatory requirements, please contact us.

Jean Everett, debtor creditor attorney

Jean S. Everett

For more than 30 years, Jean has devoted her legal career to representing borrowers, developers, lenders and issuers in financing transactions. Most recently, she has focused on the federal tax analysis relating to tax-exempt bonds including financing and refinancing transactions involving healthcare, educational and cultural facilities, multifamily rental housing, and governmental facilities.

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