CFPB gives approval to new rules governing AI tools in appraisals

The Consumer Financial Protection Bureau enhanced its support through commentary to rules issued last week that will regulate the use of algorithms and complex learning models in the home appraisal process. 

The regulations governing automated valuation models, which are commonly backed by artificial intelligence, came as a result of a joint proposal between six federal agencies. The final proposal was approved following a public comment period. The June 24 blog post announced the CFPB's publication of its final rule.

The order mandates companies using AVM tools to put safeguards into place to ensure a high level of confidence in home value estimates, protect against the manipulation of data, avoid conflicts of interest and comply with applicable nondiscrimination laws.

"It can be tempting to think that computer models can take bias out of the equation, but they can't," the CFPB said in an issued statement.

The bureau pointed out computer generated valuations are already in use on some real estate websites, such as Zillow's Zestimates. 

"While these computer models can provide critical insight for buyers, sellers and lenders, they cannot be inaccurate or discriminatory."

While federal officials have regularly issued statements notifying financial services businesses of their responsibilities to ensure nondiscriminatory outcomes from AI, CFPB Director Rohit Chopra, in particular, has voiced skepticism whether algorithmic models could remain compliant, He warned companies the bureau would be on the lookout for both unintentional or intentional violations. 

The appraisal industry, including its leading trade group, has also been a target of Chopra's criticism in the past, and several allegations of biased valuations have found their way to the courtroom over the past two years.   

"The new rule is part of our efforts to ensure that the appraisal system is fair, nondiscriminatory and free of conflicts of interest," the bureau's statement continued. "The CFPB has been working to ensure that consumers can challenge an inaccurate appraisal, to fix the serious problems at The Appraisal Foundation and to provide states with more tools to combat discriminatory appraisals. We are also examining the growing power that appraisal management companies can wield over individual appraisal professionals."

The swift growth of AI over the past two years is leading to concerns from the federal government over how to best deal with the implications of its use. Earlier this year, the Biden Administration issued a directive ordering all government agencies to install chief artificial intelligence officers to address the changes the technology involves. The Federal Housing Finance Agency quickly appointed Tracy Stephan to the position following the announcement. 

In its efforts, the CFPB said it had ended a program which could reward legal immunity and favors to AI businesses. "We've issued guidance and reports to make clear that there is no 'fancy technology' exemption in our nation's consumer financial protection and fair lending laws," the bureau added.