Compliance should not be a roadblock to innovation

Denise Wymore
August 23, 2023

The crush of regulatory compliance is never-ending and seems like it’s coming from all directions. The weight of regulatory burden is especially heavy for smaller credit unions and is often cited in mergers. Finding a strategic partner that is committed to your continued success is vitally important today. 

Don't let compliance concerns deter you from embracing advanced, inclusive, and efficient technologies. Even if you're not yet incorporating innovations like AI credit underwriting, it's vital to approach your lending strategy with a clear focus on compliance and policy. The integration of AI underwriting presents an excellent chance to collaborate with a partner capable of guiding your credit union through the ever-evolving landscape of regulations. This ensures the necessary oversight, transparency, and fairness that traditional industry models might struggle to deliver in the imminent future.

In April of this year, the CFPB put lenders and fintechs on notice: their models must search for less discriminatory alternatives (LDA) or face fair lending non-compliance risk.

This is the first time the CFPB has made it clear that a lender must demonstrate that its models could not be reasonably enhanced to be fairer before they are launched and during their use. This would apply to all model-based lending practices, whether or not they use AI tools specifically.  

Now is a great time for credit unions, especially the smaller ones, to work smarter, and not harder and see what their AI solutions partners are thinking about these changes and what their plans are to support you — their customer! 

Credit unions were created to promote thrift and make loans for provident and productive purposes. This fundamental principle underscores the structure of financial cooperatives, emphasizing the need to safeguard this process by ensuring equitable lending practices that align with regulatory standards.

Before entering into a partnership with an AI solution you need to ask them how they build, validate, and explain their models. And more importantly, how do they ensure and prove fairness? 

AI is a powerful tool, and there are steps every lender can take to ensure their models are safe, consistent, and compliant – all in the name of fairness. In May of last year, the CFPB Director Rohit Chopra stated, “Companies are not absolved of their legal responsibilities when they let a black-box model make lending decisions.” He goes on to say, “The law gives every applicant the right to a specific explanation if their application for credit was denied, and that right is not diminished simply because a company uses a complex algorithm that it doesn’t understand.” 

Credit unions understand the impact of not being able to confidently provide their community with affordable access to credit with confidence. According to a Forbes article, “Data shows that more than 1 in 5 black consumers and 1 in 9 Hispanic consumers have credit scores below 620; meanwhile, 1 out of 19 white people are in the sub-620 category.”

Credit unions future proofing their lending business do have some homework to make sure their compliance needs have oversight and investment by their AI solution partner. First, learn as much as you can about the methods used by a vendor for debiasing their models. 

For example, Zest AI uses a method called adversarial debiasing, which allows the learning process to find the most accurate prediction of default and ensures that the insights gained from the model have the most fair outcome. By using adversarial debiasing in our algorithm, Zest AI’s technology increases approvals by an average of 40 percent across protected classes.

Second, learn about the documentation provided that can be used as part of any examination. Does it cover fair lending reporting, adverse action reasons, and in-depth model explainability?

Next, meet the actual legal and compliance team that supports the models and the customers. Ask them about their compliance experience, their engagement with policymakers, and how they are supporting current clients. You’ll get a great idea of how invested and available they are to be the resource you need.

Very few credit unions have the luxury of a legal team. Most small credit unions don’t have the luxury of a dedicated compliance officer. It becomes everyone’s job which means it is no one’s job. That’s why it’s so important to lean into lending strategy with eyes wide open to compliance and policy. AI underwriting is not rocket science, it’s just good data science.


Denise Wymore is an inductee to America’s Credit Union Museum and a cheerleader for passion and commitment. Currently, she is the Marketing Manager for Small Credit Union Initiatives at Zest AI and is proud to be a credit union lifer who started her career as a teller. 

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