Banks that use AI agents for customer service may be breaking consumer-protection laws if the technology makes decisions impacting a customer's finances or blocks a consumer from getting help, according to a new report by former regulators.
"If something is illegal or unlawful, the fact that a chatbot does it isn't a shield from liability," said Adam Teitelbaum, a former director of consumer protection at the Office of the Attorney General for the District of Columbia, and a co-author of the study.
Teitelbaum and his co-author, Stephanie Nguyen, a former chief technologist at the Federal Trade Commission, are pressing for more enforcement at the state level amid the Trump administration's retreat from enforcing consumer-protection laws.
"Given the scale and speed of how these technologies are being deployed, what's happening is we're seeing in real time how people are being impacted like guinea pigs in an experiment," Nguyen said.
Using consumers as a test bed for unproven AI systems has created a massive, systemic breakdown, Nguyen argued. When companies deploy AI chatbots as intermediaries, they are responsible for every false answer, dead end, road block and broken promise, she added.
The study identifies false information as one of three areas in which misconduct by chatbots could trigger state bans for unfair and deceptive practices. Those agents have shown repeatedly they can "hallucinate" and go rogue, routinely providing false or misleading information.
AI chatbots also can obstruct consumers' access to a live human being, and they may provide an inadequate service that fails to solve a customer's problem. In addition to enforcement actions at the state level, individual consumers harmed by chatbot failures can pursue lawsuits under state consumer-protection statutes.
"AI chatbot" is a general term used by the study's co-authors to encompass everything from automated voice assistance to AI-enabled help to any automated chatbot on websites, apps and search engines.
Amid the rapid spread of this technology, financial institutions and vendors to banks and fintechs are actively seeking to manage their downside risks. But banks and fintechs face a delicate balancing act in managing AI compliance while staying competitive. Some financial firms are seeking guidance from regulators because operating without regulatory standards creates legal risks, experts say.
"If you're doing something to manage your risk, and you think that's right, but a competitor is willing to take more risk, that can yield outcomes that put [a company] at a financial disadvantage," said Benjamin Saul, a partner at the law firm Steptoe.