WASHINGTON—The Consumer Financial Protection Bureau has issued an order to terminate Upstart Network from its list of approved “no-action letters.”
The CFPB said it had granted special regulatory treatment to Upstart by immunizing the lender from being charged with fair lending law violations with respect to its underwriting algorithm, while the no-action letter remained in force. Upstart requested an amendment to the “no-action letter” that would effectively seek an immediate termination, the CFPB said.
Upstart Network originates credit, including personal and auto loans by providing bank partners with a proprietary, cloud-based, lending platform that is marketed as “artificial intelligence,” according to the Bureau. Loans originated by Upstart are either held, sold to institutional investors, or retained by bank partners. In 2021, Upstart’s bank partners originated 1.3 million loans, totaling $11.8 billion, the CFPB said.
The CFPB granted Upstart a first no-action letter in September 2017 and a second letter in November 2020. No-action letters typically grant individual companies special regulatory treatment, on certain specified matters, where an agency agrees to not take action for violations of law, the CFPB said.
What Was Required
The Bureau said the terms of the 2020 no-action letter required Upstart to notify the CFPB of significant changes to its artificial intelligence model prior to their implementation. On April 13, 2022, Upstart notified the CFPB that it intended to add a significant number of new variables to its underwriting and pricing model, the CFPB said.
“The CFPB needed sufficient time to review and rigorously evaluate the implications of the changes to Upstart’s model. In response, Upstart requested termination of the no-action letter, effectively ending the company’s special regulatory status, and allowing it to be able to make changes to its model without need for CFPB review and approval,” the CFPB stated.
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