CFPB Issues Order to Terminate Upstart No-Action Letter

Consumer Financial Protection Bureau (CFPB)

WASHINGTON, D.C. — The Consumer Financial Protection Bureau (CFPB) recently issued an order to terminate Upstart Network from its list of approved “no-action letters.” The CFPB had granted special regulatory treatment to Upstart by immunizing the lender from being charged with fair lending law violations with respect to its underwriting algorithm, while the “no-action letter” remained in force. Upstart requested an amendment to the “no-action letter” that would effectively seek an immediate termination.

Upstart Network (NASDAQ: UPST) is a financial services company 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.

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The CFPB granted Upstart a first “no-action letter” in September 2017 and a second letter in November 2020. “No-action letters” typically grant individual companies special regulatory treatment, on certain specified matters, where an agency agrees to not take action for violations of law.

The terms of the 2020 “no-action letter” required Upstart to notify the CFPB of significant changes to its “artificial intelligence” model prior to their implementation. On April 13, 2022, Upstart notified the CFPB that it intended to add a significant number of new variables to its underwriting and pricing model. The CFPB 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.

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As requested by Upstart, the order terminates the 2020 “no-action letter,” effective immediately.

Read the order here.

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