Requested by Upstart, the CFPB Terminates its No-Action Letter

The Consumer Financial Protection Bureau (CFPB) has “terminated” Upstart’s (NASDAQ:UPST) no-action letter.

Upstart is a publicly-traded firm that provides online lending for consumers as well as partnering with banks on offering could based credit services. The CFPB reports that Upstart’s bank partners have originated 1.3 million loans during 2021 totaling $11.8 billion. Loans originated by Upstart are either held directly on the firm’s balance sheet or sold to institutional money. In aggregate, Upstart has originated over $25 billion since inception with the vast majority of the loans being automated.

The CFPB said it 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.

The CFPB granted Upstart a first “no-action letter” in September 2017 and the second letter in November 2020.

The terms of the 2020 “no-action letter” required Upstart to notify the CFPB of significant changes to its artificial intelligence (AI) model prior to their implementation.

On April 13, 2022, the CFPB states that Upstart notified the agency that it intended to add a number of new variables to its underwriting and pricing model. 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 the need for CFPB review and approval.

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