Banks Associations Urge Federal AI Law to Supersede State Laws

The American Bankers Association, along with 21 other state banker associations, has called for any new federal AI legislation to override state laws to ensure banks are exempt from duplicative rules.

In response to the Treasury Department’s request for information on the uses, opportunities and risks of AI in the financial services, the associations highlighted that previous unclear privacy regulation caused confusion for banks, resulting in inconsistent consumer protection and a significant compliance burden.

Therefore, they urged policymakers to avoid repeating this mistake with AI regulations.

The associations also called for an updated model risk management guidance from regulators to clarify expectations given recent changes in the industry. However, they emphasized that this should only occur following an appropriate notice and comment period.

The associations further highlighted that AI and Generative AI (GenAI) are valuable tools for supporting various banking applications. They noted that banks have been responsibly using AI for decades, enabling them to now begin integrating GenAI within well-established risk management frameworks.

However, they did understand that the deployment should only take place in an environment that carefully considers potential risk with appropriate mechanisms in place to manage those risks.

In a letter, the associations said:  “This is especially true for banks, which are integral to the economy, responsible for safeguarding customers’ money, and which need to build and maintain customers’ trust in order to do so.”

The Consumer Financial Protection Bureau (CFPB) also responded to the request, in which it highlighted the role of regulators in managing the adoption of emerging technologies, such as AI and GenAI.

It urged regulators to ensure consistent enforcement of rules to promote innovation. According to the CFPB, uniform regulations prevent firms from exploiting legal loopholes for competitive advantage and encourage them to focus on developing innovative products instead.

It also recommended that regulators clarify that federal consumer financial protection laws apply equally to new technologies as regulators are legally required to enforce existing rules across all technologies, including those marketed as new or novel.