House Financial Services Committee Leaders Push for AI Oversight in Finance and Housing

Lawmakers Push for AI Oversight in Finance and Housing Sectors

In a significant move to address the growing influence of artificial intelligence (AI) in critical industries, top lawmakers from the House Financial Services Committee are taking decisive steps to evaluate and regulate the technology’s impact on the finance and housing sectors. Representatives Patrick McHenry (R-N.C.) and Maxine Waters (D-Calif.), the committee’s chair and ranking member, respectively, have introduced a resolution and a bill aimed at understanding and managing the implications of AI in these fields.

A Year of Bipartisan Effort Culminates in Legislative Action

On Monday, McHenry and Waters announced the introduction of a resolution acknowledging the increasing use of AI in financial services and housing. Alongside this, they unveiled a bill that mandates financial regulatory agencies to study the benefits and risks of AI within their respective sectors. These initiatives are the result of nearly a year of work by the committee’s bipartisan AI working group.

The timing of these announcements is critical, as they come just days before a hearing that will delve into how AI is shaping the future of finance. McHenry emphasized the transformative potential of AI, stating, “Artificial intelligence holds the promise to revolutionize our financial system. 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.”

Key Focus Areas of the Resolution

The resolution, co-sponsored by McHenry and Waters, outlines the committee’s responsibilities in overseeing AI’s integration into the financial and housing sectors. It highlights several critical areas:

• How housing market participants use AI for underwriting and tenant screening.
• The potential for AI in financial institutions to increase herding behavior in markets.
• Ensuring financial regulatory agencies have the necessary tools to enforce laws as AI adoption grows.
• Exploring reforms to data privacy laws, given the importance of consumer data in AI applications.
• Collaborating with regulators to assess AI’s impact on the workforce.
• Positioning the United States as a global leader in AI development and application in these industries.

Waters echoed these sentiments, stating, “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. Our committee will continue to collaborate closely with the federal government to identify the risks and benefits of AI and to explore further legislation needed to protect people and our communities.”

The AI Act of 2024: A Comprehensive Study

The proposed legislation, titled the Analysis and Improvement Act of 2024 (or the AI Act of 2024), mandates several federal agencies to deliver detailed reports on AI’s role in their respective domains. These agencies include the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency, the Consumer Financial Protection Bureau (CFPB), and the National Credit Union Administration.

The bill outlines specific areas for investigation, such as:

1. The use of AI in home valuation, loan underwriting, and servicing.
2. How banking institutions leverage AI to combat fraud, money laundering, and cybercrime.
3. The role of AI in debt collection and foreclosures.
4. AI’s potential to mitigate bias and discrimination in banking services.
5. How AI can level the playing field between small and large financial institutions.
6. AI’s contributions to cybersecurity risk management.

Additionally, the Securities and Exchange Commission (SEC) is tasked with examining AI’s risks and benefits to financial markets, while the Treasury Department will study the technology’s potential to safeguard the nation’s financial system against national security threats.

AI in Housing: A Closer Look

The bill also calls on the Department of Housing and Urban Development (HUD), the Federal Housing Finance Agency (FHFA), the Rural Housing Service of the Department of Agriculture, and the CFPB to evaluate AI’s impact on housing and mortgage regulation. This includes assessing both the risks and benefits of AI in these areas.

Waters expressed optimism about the bipartisan nature of the initiative, stating, “I look forward to passing these bills and continuing to work in a bipartisan manner on this important issue next Congress.”

What’s Next?

As AI continues to permeate various aspects of daily life, its influence on critical sectors like finance and housing cannot be overstated. The resolution and the AI Act of 2024 represent a proactive approach by lawmakers to ensure that the technology is used responsibly and equitably. By addressing issues such as data privacy, workforce impact, and global leadership, the House Financial Services Committee is laying the groundwork for a future where AI can be a force for good while minimizing its potential risks.

With the upcoming hearing and the continued efforts of the bipartisan AI working group, the conversation around AI’s role in these industries is far from over. These legislative measures are just the beginning of what promises to be an ongoing dialogue about the intersection of technology, regulation, and public interest.