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AI and Other Decision-Making Tools: Does the Fair Credit Reporting Act Apply?

Dec 17, 2024 - natlawreview.com
The Consumer Financial Protection Bureau (CFPB) has issued guidances highlighting the potential Fair Credit Reporting Act (FCRA) compliance issues that can arise when employers use decision-making tools, including AI and algorithmic services, for employment purposes. The FCRA typically applies when employers obtain consumer reports from third-party consumer reporting agencies (CRAs) for employment decisions such as hiring, promotions, and retention. Employers must carefully assess whether FCRA applies, particularly considering the data sources and the nature of the reports generated by third-party software. For instance, if AI tools use public consumer data to generate performance reports, the vendor might be considered a CRA, thus implicating FCRA.

Additionally, the intent of the vendor and the use of AI tools can influence FCRA applicability. If a vendor does not intend its reports to be used as consumer reports, it may not be classified as a CRA. Employers should also be aware of other legal considerations, such as state laws like Colorado's AI Act, which imposes duties on deployers of high-risk AI systems to prevent algorithmic discrimination. The CFPB's guidances serve as a reminder for employers to thoroughly evaluate FCRA implications and other legal aspects before employing AI or purchasing decision-making tools for employment-related purposes.

Key takeaways:

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  • The Fair Credit Reporting Act (FCRA) may apply to decision-making tools and AI services used for employment purposes, particularly when consumer reports are involved.
  • Employers must consider the sources of data used by AI tools, as using public consumer data could classify the vendor as a consumer reporting agency under FCRA.
  • The intent of the vendor and whether the reports are meant to be used as consumer reports can affect FCRA applicability.
  • Employers should be aware of other state and federal laws, such as Colorado's AI Act, which impose additional responsibilities when using AI systems.
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