Navigating the Future of AI in Financial Services

Insights from Treasury’s Acting Assistant Secretary of Financial Institutions, Laurie Schaffer

Why it matters: AI is reshaping financial services, offering significant advancements in efficiency and accessibility while introducing challenges related to fairness and privacy.

The big picture: Treasury is committed to harnessing AI’s potential while managing its risks, particularly in consumer finance and insurance sectors.

KEY POINTS
AI’s Promise: AI technologies have become integral to financial services, enhancing everything from fraud detection to customer service. Treasury’s Bureau of Fiscal Service implemented AI for fraud detection, recovering over $375 million since early 2023.

Emerging Risks: AI poses risks in three main areas:

• Design Risks: Poor data quality can lead to biased outcomes, perpetuating existing inequalities.
• Operational Risks: Increased reliance on third-party cloud services can obscure visibility into AI models, heightening cybersecurity vulnerabilities.
• Human Interaction Risks: Misuse of AI outputs can lead to harmful decisions, emphasizing the need for human oversight.

AI in Consumer Finance: The CFPB notes that around 45 million consumers lack traditional credit scores. AI-driven models can enhance access to credit for underserved populations but may also raise privacy concerns due to the extensive data they utilize

AI in Insurance: A survey revealed that 88% of auto insurers and 70% of homeowners insurers are exploring or using AI. While this can improve efficiency and reduce costs, it also risks perpetuating biases in underwriting and pricing

What’s Next: Treasury will continue monitoring AI’s role in financial services, focusing on responsible innovation and regulation that prioritizes consumer protection and equity.

Role of ETA: Schaffer acknowledged events like ETA’s annual Fintech Policy Forum are vital for fostering dialogue and understanding as we navigate the evolving landscape of AI

Our Thought Bubble: As AI technology evolves, ETA is at the forefront, representing the interests of the industry to ensure a fair and balanced environment that benefits the industry and the interests of the American public.

• ETA published AI fast facts to educate Capitol Hill on how the industry uses and does not use AI.
• ETA organized a fly-in for member executives to meet lawmakers in the Senate and Capitol Hill to speak about AI.

SOURCES
https://home.treasury.gov/news/press-releases/jy2620