Although HFS Federal, like many credit unions, opted to use a third-party partner with expertise and experience in credit union lending for the software, the credit union is still responsible for regulatory compliance, said St. John. “Regulators are consistent in their guidance for all AI products. They want human beings involved in the process,” he said. For example, Regulation B requires an adverse action notice that ensures there is no discrimination in the determination. “If an AI program is approving or denying loans, regulators want an employee to review all denials and provide the applicant with the specific reasons for the denial. Simply saying that the algorithm denied the application is not enough.” Another caution when introducing AI in the loan origination process is the potential presence of flawed data and a lack of understanding as to how the AI model can result in unintentional discrimination. A process that not only reviews denials, but also randomly audits decisions can identify potential changes needed to avoid discriminatory decisions. Other AI Uses “AI can also be helpful in generating fraud alerts based on algorithms that identify an individual’s pattern of behavior,” said St. John. The alerts may help credit unions ensure compliance with Bank Secrecy Act requirements and generation of Suspicious Activity Reports. Chatbots or automated messages on websites and in credit union apps are a convenience for members who want to ask questions outside traditional business hours or during the day when they are unable to make a phone call to Streamlining the underwriting process to speed up decisions and provide more automatic approvals without increasing risk was the goal of Donn Mende, loan manager at HFS Federal Credit Union in Hilo, Hawaii, when his organization added AI assistance to their underwriting processes. “AI has been a buzzword for a while, but we spoke to other credit unions about their experience with it in their loan origination systems, and everyone said it was a good tool,” said Mende. “We use AI for personal, credit card and vehicle loans.” Mende and his organization worked on the evaluation and testing of the program for a year before implementation. “During the testing phase, we ran the program with information from loans we previously made, then compared the results of the AI program’s decisions against the decisions made by our employees,” he explained. The results of these tests were used to tweak the program to reflect needs and requirements that are unique to HFS Federal. HFS Federal’s goal is to increase automated approvals by 25%, to provide a quicker response to members and to allow loan officers to focus on more complex decisions, said Mende. “This is a cultural shift for our loan officers, so we had to reassure them that they did not need to go back and doublecheck every automated decision.” The combination of testing results before implementation and experience will lead to more confidence in the system, he added. “We have always conducted internal audits on lending decisions, and we’ll closely monitor the decisions as well as delinquencies related to the automated approvals.” “ One of the most obvious benefits of AI is the ability to automate underwriting to support credit decisions. AI can expand the underwriting process to include a number of data sources, far more than a human can handle in a timely manner, which could make the process more efficient and less risky. ” NICK ST. JOHN, NCCO, NCBSO, DIRECTOR OF REGULATORY COMPLIANCE, NAFCU 14 THE NAFCU JOURNAL November–December 2023
RkJQdWJsaXNoZXIy Nzc3ODM=