Fed’s Brainard wary of black box AI models in consumer credit

Speech raises explainability issue; says existing model risk guidelines are “a good place to start” in regulating AI

Lael Brainard: “Transparency is integral to avoiding discrimination and other unfair outcomes”

US Federal Reserve governor Lael Brainard has urged banks to tread carefully when using machine learning (ML) techniques, which have become notorious for generating conclusions that are difficult to decipher, if not outright opaque.

Speaking at a fintech conference in Philadelphia, she singled out consumer lending as an area where understanding how ML models work is critical. “One area where the risks may be particularly acute is the consumer space generally, and consumer lending in particular,