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NYDFS offers guidance to insurers on AI models
On January 17, NYDFS issued a guidance letter on artificial intelligence (AI) intended to help licensed insurers understand NYDFS’s expectations for combating discrimination and bias when using AI in connection with underwriting. The guidance is aimed at all insurers authorized to write insurance in New York State and is intended to help insurers develop AI systems, data information systems, and predictive models while “mitigat[ing] potential harm to consumers.”
The guidance letter states that while the use of AI can potentially result in more accurate underwriting and pricing of insurance, AI technology can also “reinforce and exacerbate” systemic biases and inequality. As part of the letter’s fairness principles, NYDFS states that an insurer should not use underwriting or pricing technologies “unless the insurer can establish that the data source or model… is not biased in any way” with respect to any class protected pursuant to New York insurance law. Further, insurers are expected to demonstrate that technology-driven underwriting and pricing decisions are supported by generally accepted actuarial standards of practice and based on actual or reasonably anticipated experience. It was last noted that these rules build on New York Governor Hochul’s statewide policies governing AI.
DoD changes interpretation of MLA related to Guaranteed Asset Protection contracts
On February 28, the Department of Defense (DoD) published an amendment to its December 2017 interpretive rule (2017 Rule) for the Military Lending Act (MLA) to withdraw a provision concerning the exemption of credit secured by a motor vehicle or personal property. As previously covered by InfoBytes, the 2017 Rule stated that additional costs may be added to an extension of credit so long as these costs relate to the object securing the credit, and not the extension of credit itself. In particular, the 2017 Rule stated that if credit is extended to cover “Guaranteed Auto Protection insurance or a credit insurance premium” the loan is covered by the MLA.
Following the publication of the 2017 Rule, the DoD received several requests to withdraw this Rule. The requests raised concerns that creditors “would be unable to technically comply with the MLA . . . because 232.8(f) of the [MLA] regulation would prohibit creditors from taking a security interest in the vehicle in those circumstances and creditors may not extend credit if they could not take a security interest in the vehicle being purchased.” The DoD stated that it found merit in these concerns and agreed that additional analysis is warranted. As a result, the DoD has withdrawn amended Q&A #2 from the 2017 Rule, and reinstated the 2016 Rule, which states that loans secured by “personal property” do not fall within the exception to “consumer credit” if the creditor “simultaneously extends credit in an amount greater than the purchase price.”
The amended interpretive rule is effective immediately.
Federal banking agencies seek comments on proposal to revise regulatory capital rules
On May 14, the Federal Reserve Board, FDIC, and OCC published a joint notice and request for comment on a proposal to revise regulatory capital rules to, among other things, identify which credit loss allowances are “eligible for inclusion in regulatory capital” under changes made to U.S. generally accepted accounting principles (U.S. GAAP), described within Accounting Standards Update No. 2016-13 (ASU 2016-13). The proposed rulemaking would provide (i) banking organizations subject to the agencies’ regulatory capital rules with “the option to phase in the day-one adverse effects on regulatory capital that may result from the adoption of the new accounting standard;” (ii) amendments to certain regulatory disclosure requirements to reflect applicable changes to U.S. GAAP covered under ASU 2016-13; (iii) amendments to stress testing regulations, which would grant covered banking organizations that have adopted ASU 2016-13 an extension until the 2020 stress test cycle to “include the effect of ASU 2016-13 on their provisioning for purposes of stress testing;” and (iv) conforming amendments to other regulations referencing credit loss allowances. Comments must be submitted by July 13.