Chair of the House Financial Services Committee, Patrick McHenry (R-NC), and Ranking Member Maxine Waters (D-CA) have just introduced two bipartisan measures highlighting the impact of artificial intelligence (AI) on the financial services and housing industries. They did so just prior to a hearing by the committee on how technology is shaping the future of these two industry sectors.

Chairman McHenry introduced a resolution, cosponsored by Ranking Member Waters, acknowledging the growing use of AI in the financial services and housing industries.

And Ranking Member Waters introduced a bill, cosponsored by Chairman McHenry, directing the federal financial regulators to study the present and potential benefits and risks of AI as it relates to the financial and housing markets.

The two measures build upon the efforts of the Committee’s Bipartisan AI Working Group to identify the advantages and risks of the technology, as well as the impacts of existing laws and regulations on its adoption.

Evaluate risk

“Artificial intelligence holds the promise to revolutionize our financial system,” said Chairman McHenry. “As firms increasingly leverage AI, lawmakers and regulators tasked with oversight of the financial services industry must constantly evaluate the risks and benefits this technology poses. These bills are a small, but critical, step forward to empower the financial system to realize the numerous benefits artificial intelligence can offer for consumers, firms, and regulators.”

“Artificial Intelligence is growing rapidly, and people across America are already seeing its use in our nation’s housing and financial services sectors, with impacts on mortgage lending, credit scoring, and more,” said Ranking Member Waters. “I am so proud to partner with Chair McHenry to introduce these two bipartisan bills, which continue the Committee’s leadership in examining and understanding the impact this technology has on people.”

AI Act of 2024

The proposed legislation to which McHenry and Waters refer (and is noted above) is called the Analysis and Improvement Act of 2024 – or AI Act of 2024 for shirt – and it revolves around carrying out studies on the realized and potential benefits of AI in financial services.

It is specifically designed to examine the following things:

• banking institutions’ use of AI for customer service;
• banking institutions’ use of AI in loan underwriting and servicing;
• banking institutions’ use of AI in home valuation;
• banking institutions’ use of AI to detect and deter fraud , money laundering, cybercrime and other illicit activity;
• the use of AI in debt collection, including foreclosures;
• banking institutions’ use of AI for internal processes and compliance procedures, including compliance with federal fair lending laws;
• how smaller banking institutions can leverage the benefits of AI technology;
• banking institutions’ use of AI to mitigate bias and discrimination and increase banking services to historically underserved and underbanked consumers; and
• banking institutions’ use of AI to enhance cybersecurity risk management.

Reports from regulators

The bill requires that the main US banking regulatory bodies submit to the Committee on Financial Services of the House of Representatives and the Committee on Banking, Housing, and Urban Affairs of the Senate a report no later than 180 days after the enactment of the Act that examines each of the bulleted elements noted above.

Those institutions are the Board of Governors of the Federal Reserve System; the Federal Deposit Insurance Corporation; the Office of the Comptroller of the Currency; and the Consumer Financial Protection Bureau.

It also requires a report from the SEC that similarly describes the realized and potential benefits and risks of AI technology, including:

• market participants’ use of AI for market research and examining the difference between public and private markets;
• market participants’ use of AI for portfolio management;
• exchanges’ use of AI for market surveillance, fraud detection and order placements; and
• generally examining the statutes, regulations and agency guidance (or lack thereof) that is affecting the development and use of AI and current uses of AI in the agency’s supervision and other areas.

And it requires this type of report from the housing agencies (Housing and Urban Development, the Rural Housing Service of the Department of Agriculture), and the Consumer Financial Protection Bureau), focused on the following:

• the use of AI to create efficiencies for homebuyers in evaluating, comparing and obtaining a mortgage loan and sustaining homeownership over time;
• the use of AI to enhance risk management and compliance within the housing finance system;
• the use of AI to enhance the accuracy, efficiency, and fairness of credit decisions, particularly for homebuyers in underserved communities;
• the use of AI by real estate agents, property managers, mortgage servicers and underwriters, online housing platforms and landlords; and
• the use of AI in the marketing and outreach to retail customers regarding housing products.

Finally, the Secretary of the Treasury – the final agency cited in the bill – must submit a report that examines the potential risk and benefits of AI technology, including:

• the use of AI by financial institutions to meet their obligations under the Bank Secrecy Act (BSA) and sanctions laws;
• the use of AI by financial institutions to protect against cybersecurity threats and to respond to cybersecurity attacks; and
• the statutes, regulations and agency guidance that would affect the development and use of AI by financial institutions in complying with the BSA and sanctions imperatives.

AI-related skillsets

Each of the agencies designated above that are tasked with reporting requirements have another interesting obligation: They must report what challenges they have in leveraging AI and hiring or retaining staff with the requisite expertise in AI technology and the potential solutions to overcoming such challenges.