Cheering on the NCUA’s AI and inclusion efforts

The former Vice-Chair of the National Credit Union Administration (NCUA) board, Kyle S. Hauptman, is now its 13th Chairman. In outlining his vision for the role, Chairman Hauptman emphasized his commitment to driving growth, innovation, and financial inclusion across the credit union system — priorities that Zest AI enthusiastically supports.

Transparency and efficiency stand at the forefront of Hauptman’s agenda, which aims to create an environment where credit unions can better serve their members. His comprehensive plan includes tackling regulatory hurdles, implementing fair compliance standards, and strengthening credit unions’ ability to support their communities, with a particular focus on low-income areas.

Zest AI is excited to continue engaging with the NCUA in support of many of the issues on the mind of the NCUA’s new Chairman. We’re delighted to see that he is following the precedent for embracing the responsible use of artificial intelligence that we’ve seen from prior NCUA Chairmen Todd M. Harper and Zest AI board member Rodney E. Hood. AI is a powerful tool that can enhance productivity and performance within lending institutions. AI can also promote inclusive lending practices, making credit more accessible to individuals who traditional credit scoring methods have overlooked.

We are grateful to the NCUA for their continued leadership in pursuing innovation and offer two suggestions to help spur on the success of the agency’s priorities.

One: Technology should be in the hands of both the credit unions and the regulators

Access to technology begins a long transformation process that enables organizations to be more nimble, knowledgeable, and productive. We commend the Office of Financial Technology and Access for all they do to expand technology horizons for both credit unions and the agency. We also embrace the potential for technology providers, like Zest AI, to work with this office and NCUA leadership to support the NCUA’s objectives better.

When regulators have access to advanced technology and can come to better understand how it is used in the industry they’re regulating, it increases transparency for all those involved. Promoting the appropriate, responsible use of artificial intelligence (AI) as a tool for use within the NCUA is one concrete way we think the agency can explore how advanced technology can enhance the incredible work happening at the NCUA.

The NCUA should explore ways to pilot new AI technology and use cases, so staff across the agency can acquire fluency with advanced technologies in a controlled environment. For example, AI/ML can improve documentation and report generation. AI/ML technology is also crucial to appropriately examine complex AI/ML models for compliance with explainability and fair lending requirements. While this internal usage would support the goal of enhancing productivity, regulator usage of these technologies can also facilitate clarity and recognition when covered entities develop or deploy similar technologies.

By prioritizing responsible AI adoption within their own organization, the NCUA can foster an environment ensuring that AI technology increases efficiency, transparency, and fairness within the financial ecosystem. A balanced approach to AI adoption, rooted in accountability and aligned with consumer protection, can strengthen the industry from top to bottom.

Two: Financial inclusion goes beyond the consumer to include expanding and creating credit unions

Expanding equitable access to credit and better lending products goes beyond including more consumers — it also means creating new and building up credit unions that are technologically advanced enough to keep up with consumer needs.

Credit unions play a vital, yet often overlooked, role in our financial system. They foster competition in financial services, support local economies through small business lending, provide financial education to members, and offer personalized services and consultation. The loss of small credit unions can leave communities without local lenders, creating banking deserts, eliminating jobs, and reducing community services. All of this, and more, could be slowed or avoided if advanced technology was more readily available to these smaller institutions, allowing them to compete better and meet the needs of their members.

However, new technology doesn’t come cheap, and many small credit unions simply cannot afford innovation at the rate that larger ones can. This lack of access is part of what has led to a surging number of mergers and acquisitions and a consolidation of assets for credit unions. The NCUA has provided some helpful practices for credit unions facing the multitude of challenges that lead up to a merger. Still, it remains difficult for individual credit unions to navigate the inaccessibility of technology, especially with these other issues piled on top.

Expanding the NCUA policies and programs that enable all credit unions to access the same levels of technology — whether they’re doing one hundred or hundreds of thousands of loans in a year — creates a more inclusive and competitive economy, ultimately benefiting consumers. The challenge of access to technology is why Zest AI designed a strategic, affordable product offering for small credit unions in 2023.

Setting the stage for the next evolution of credit unions starts now

As Chairman Hauptman takes up his new role at the NCUA, there is a clear opportunity to continue to advance both technological innovation and financial inclusion in the credit union system. The integration of AI technology — particularly when made accessible to both regulators and credit unions of all sizes — can serve as a catalyst for achieving these goals.

The path forward will benefit from a dual focus on supporting regulatory understanding of new technologies while simultaneously making these innovations accessible to credit unions of all sizes. This approach will not only help prevent the consolidation of smaller institutions but also ensure that credit unions can continue their mission of serving communities effectively, particularly in underserved areas. With Chairman Hauptman’s thoughtful leadership and NCUA’s strategic implementation of AI technologies, the credit union system can continue evolving to meet modern challenges while staying true to its foundational purpose of providing accessible, community-focused financial services.