Upstart Terminates No-Action Letter

UPST and CFPB mutually agreed to terminate their No-Action Letter. They are adding additional variables to their lending AI framework, and need to rapidly respond to changing economic conditions without getting prior approval from CFPB.…


sorry is there a background story or can you explan what that mean all?
Is this good or bad?

Small Position UPST (Bagholding as everyone else)

As a nonfinance noncomputer person this is how I interpret it

The good

  • upstart is making rapid changes to it algorithm to adjust to changing macroeconomic conditions
  • ai/ml models are doing what they are suppose to and reacting (“learning” and adapting) to additional new inputs or variables

The bad

  • they are open to litigation from the gov
  • could be an admission that the ai/ml models weren’t doing a great job in the current market environment and needed to be changed rapidly


  • only time will tell

I think this is the relevant part of the notice:

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.

It appears that as Upstart continues to ramp and refine its AI, it came to the point where the government systems at the Bureau could not keep up or didn’t have the technology itself to respond quickly enough to the changes UPST was making.

So UPST had a choice. They could slow their business down to wait on regulators to analyze the firehose of new AI parameters they were adding. Or, they could let go of the letter, build quickly, and take the chance of greater scrutiny down the road.

Since they partnered with organizations like the NAACP and minority-owned institutions early on, and since their published analysis since has shown a decrease in bias in their outcomes, they likely feel the greater risk was in being tethered to the pace of approval by the CFPB. Since Upstart was the one who requested the termination of the letter, it doesn’t appear that there is any current problem on the regulatory side.

Still long UPST