November 24, 2021 – The Federal Trade Commission has issued limited guidance in the area of artificial intelligence and machine learning (AI), but through its enforcement actions and press releases has made clear its view that AI may pose issues that run afoul of the FTC Act’s prohibition against unfair and deceptive trade practices. In recent years it has pursued enforcement actions involving automated decision-making and results generated by computer algorithms and formulas, which are some common uses of AI in the financial sector but may also be relevant in other contexts such as health care.
In FTC v. CompuCredit Corp., FTC Case No. 108-CV-1976 (2008), the FTC alleged that subprime credit marketer CompuCredit violated the FTC Act by deceptively failing to disclose that it used a behavioral scoring model to reduce consumers’ credit limits. If cardholders used their credit cards for cash advances or to make payments at certain venues, such as bars, nightclubs and massage parlors, their credit limit might be reduced.
The company, the FTC alleged, did not inform consumers that these purchases could reduce their credit limit, neither at the time they signed up nor at the time they reduced the credit limit. By not informing consumers of these automated decisions, the FTC alleged that CompuCredit’s actions were deceptive under the FTC Act.
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In its April 8, 2020, press release titled, “Using Artificial Intelligence and Algorithms, “the FTC recommends that use of AI tools should be transparent, explainable, fair …….