Artificial intelligence (AI) is poised to revolutionize finance and housing, bringing both game-changing benefits and thorny new risks that demand vigilant oversight, a bipartisan House panel concluded.
The House Financial Services Committee’s AI Task Force, created in January by the chairman Patrick McHenryR.N.C., and ranking member Maxine Waters, D-Calif., examined the impact of AI 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, improve fraud detection, and enhance customer service. However, it also warned of challenges related to data privacy, potential bias in algorithmic decision-making, and the need to ensure AI systems comply with applicable laws.
“As consumers and businesses increasingly look to leverage AI, it is critical that policymakers and regulators keep pace,” McHenry said in a statement. press release“This report is the result of a bipartisan effort to understand the potential benefits and risks of artificial intelligence in the financial services and housing sectors. It also highlights the need for adequate oversight and consumer protections to address the growing number of use cases for artificial intelligence.”
The report comes as financial firms increasingly experiment advanced AI capabilitiesincluding generative AI systems like ChatGPT. While many institutions have been using traditional machine learning models for years, new AI technologies are opening the door to new applications.
Expanding access to credit
The AI Working Group held six roundtables to explore how the financial sector is using AI. Regulators told the group that AI could lead to bias and discrimination that may be harder to spot. They stressed that companies using AI must still comply with anti-discrimination laws. Consumer Financial Protection Bureau said that if a lender cannot explain why AI denied a loan, it is breaking the law.
Banks and investment firms are cautiously adopting AI, especially for public-facing tasks, panelists said. Many have been using machine learning to crunch data for years. Now, they’re testing new AIs to help with research, monitor market issues, and improve trading. But there are risks. Too many firms using similar AI models could lead to herding in the market.
In the housing and insurance industry, AI is transforming how businesses operate, approving loans and insurance, screening tenants, better serving customers, and analyzing data.
For example, AI-powered underwriting models have shown promise in approving more borrowers from underserved communities for mortgages. One company reported a 177% increase in loan approvals for Black applicants thanks to AI-powered underwriting.
However, the task force also heard concerns that AI could perpetuate or even exacerbate historical biases in credit if it is not carefully designed and monitored. Consumer advocates stressed the need for human oversight and consumers’ right to appeal decisions made by AI.
Challenges and recommendations
On the regulatory front, the agencies stressed during the roundtables that the use of AI does not exempt financial institutions from complying with existing laws. The report notes: “Several regulators indicated that regulated entities are expected to comply with all laws, including anti-discrimination and other consumer protection laws, in a technology-neutral manner.”
The Treasury Department, in a separate report mandated by President Joe Biden’s executive order on AI, highlighted the cybersecurity risks posed by AI in the financial sector. It warned of a growing technology gap between large institutions that have the resources to build AI capabilities in-house and smaller companies that may need to rely more on third-party vendors.
The House panel’s report made several recommendations to policymakers, including ensuring that financial regulators have the appropriate tools and expertise to oversee new AI products and services, reviewing data privacy laws, and promoting U.S. leadership in setting global standards for responsible AI development in the financial sector.
The working group also highlighted the need for clearer definitions and a common lexicon around AI in finance, noting confusion even among experts about the precise meaning of terms like “machine learning” and “generative AI.”
While the report does not call for immediate legislation, it suggests that Congress may need to fill regulatory gaps as AI becomes more sophisticated and widely adopted across the financial system.
“The Committee should ensure that regulators implement and enforce existing laws, including anti-discrimination laws, and assess regulatory gaps as market participants adopt AI,” the report said.
As AI capabilities continue to advance rapidly, the House panel’s work suggests that financial regulators and lawmakers will need to remain vigilant and adaptable.
“The Committee must ensure U.S. global leadership in the development and use of AI,” the report concludes, emphasizing the importance of maintaining U.S. competitiveness while addressing potential risks.
The transformative potential of AI in the financial sector is clear, but ensuring that its benefits are realized fairly and safely is equally challenging. The committee’s findings set the stage for an ongoing debate about how best to foster innovation while protecting consumers and preserving the integrity of the financial system.
On Tuesday, July 23, the House Financial Services Committee will convene a audience titled “AI Innovation Explored: Overview of AI Applications in Financial Services and Housing” to discuss the findings of the recent report in more detail.
