New legislation aimed at regulating artificial intelligence (AI) could have major implications for mortgage lenders using automated tools in their credit decisions. The AI Civil Rights Act, introduced by Sen. Edward Markey (D-Mass.), would outlaw the use or distribution of AI-driven solutions that may perpetuate discrimination and bias.

The potential for unintended bias to influence AI decision engines has long been a concern for compliance and technology professionals in the real estate finance industry, as well as for lawmakers and civil rights advocates.

“Whether on the Senate floor or around the dining room table, artificial intelligence is the hottest topic of the year,” Markey said in a statement obtained by Dodd-Frank Update and Respa News, sister publications to Valuation Review. “But these complex algorithms have a darker side as well – one that has real consequences for everyday people, especially marginalized communities. I am introducing the Artificial Intelligence Civil Rights Act to ensure that the AI Age does not replicate and supercharge the bias and discrimination already prevalent in society today.”

The bill, co-sponsored by Sen. Mazie Hirono (D-Hawaii), addresses growing concerns about the potential disparate impact of bias in AI systems used in credit evaluations, employment and other key sectors. If passed, the legislation would mean legal consequences for decisions resulting in disparate impacts based on protected characteristics, while also requiring independent audits to ensure fairness before and after deployment.

According to Markey’s statement, the AI Civil Rights Act would:

• Regulate algorithms involved in consequential decisions, such as those that impact people’s rights, civil liberties and livelihoods, including employment, banking, health care, the criminal justice system, public accommodations and government services.
• Prohibit developers and deployers from offering, licensing or using covered algorithms that discriminate based on protected characteristics or that cause a disparate impact.
• Require developers and deployers of covered algorithms to complete independently audited pre-deployment evaluations and post-deployment impact assessments to identify, evaluate and mitigate any potential biased use or discriminatory outcomes.
• Require developers and deployers to mitigate any harms identified by the pre-deployment evaluations and impact assessments and ensure that any covered algorithm performs reasonably well and is consistent with its publicly advertised purpose.
• Increase transparency around the use of covered algorithms in consequential decisions, including providing individuals a right to appeal an algorithmic decision to a human decision-maker.
• Authorize the Federal Trade Commission (FTC), state attorneys general and private individuals to enforce the Act.

Markey stressed the bill is not an effort to stifle innovation with respect to AI.

“Make no mistake: we can have an AI revolution in this country while also protecting the civil rights and liberties of everyday Americans, we can support innovation without supercharging bias and discrimination, and we can promote competition while safeguarding people’s rights,” he added.

On the other side of the discussion about appropriate legal restrictions on AI tools is Sen. Patrick McHenry (R-N.C.).

In March, McHenry tried for a fourth time to get Congress to consider legislation to create “regulatory sandboxes,” allowing financial services providers to offer innovative products and services under an alternative compliance plan, which would apply to developing AI tools. McHenry asserted his bill would “give entrepreneurs an opportunity to test legal and regulatory waters before taking new products and services to market” and “help ensure the United States continues to lead the world in financial innovation.”

Federal regulators put companies on notice in May 2023, releasing a joint statement saying discriminatory outcomes driven by innovative technology solutions, including AI tools, would not be tolerated. The statement was signed by the Consumer Financial Protection Bureau (CFPB), FTC, the Civil Rights Division of the U.S. Department of Justice, and the Equal Employment Opportunity Commission. The agencies expressed the need for a heightened emphasis on transparency concerning how automated systems make credit determinations.