A “no action letter” (NAL) has been terminated at the request of the company that initially received it so the firm could change its underwriting and pricing models but not be subject to additional review, the federal consumer financial protection agency said Wednesday.
The termination is effective immediately, the agency said.
In a release, the Consumer Financial Protection Bureau (CFPB) said it had issued an order to terminate Upstart Network from its list of approved NALs. Upstart had received an NAL from the CFPB in 2020 which the bureau said protected the firm from being charged with fair lending law violations with respect to its underwriting algorithm, while the NAL remained in force.
Upstart is described by the CFPB as a financial firm that originates credit, including personal and auto loans, by providing bank partners with a proprietary, cloud-based lending platform that is marketed as “artificial intelligence.” Loans originated by Upstart are either held, sold to institutional investors, or retained by bank partners. In 2021, Upstart’s bank partners originated 1.3 million loans, totaling $11.8 billion, the CFPB said.
Under the terms of the 2020 letter, according to the CFPB, Upstart is required to notify the bureau of significant changes to its “artificial intelligence” model prior to implementation. In April, the CFPB said, the firm notified the bureau that Upstart intended to add “a significant number of new variables to its underwriting and pricing model.”
The CFPB order states that, in its application to modify, Upstart cited a need to be able to “respond to the rapid pace of change in credit markets by making model changes promptly, and it noted that it was likely to make additional time-sensitive model revisions in light of ongoing volatility in the credit markets.”
The bureau asserted that, in applying to modify an NAL to shorten the term to expire immediately, “Upstart has effectively requested to terminate the NAL.”
The CFPB said it told the firm that the agency needed sufficient time to review and rigorously evaluate the implications of the changes to Upstart’s model. “In response, Upstart requested termination of the ‘no-action letter,’ effectively ending the company’s special regulatory status, and allowing it to be able to make changes to its model without need for CFPB review and approval,” the bureau said.