Colorado's ADMT Act Proposed Regulations: Unpacking the Confusion and Compliance Challenges for Financial Services

Chris Willis (0:05)

Welcome to the Consumer Finance Podcast. I'm Chris Willis, the co-leader of Troutman Pepper Locke's Consumer Financial Services Regulatory Practice. And today we're going to be talking about the newly released proposed regulations under the Colorado ADMT Act, which used to be the Colorado AI Act. But before we jump into that topic, let me remind you to visit and subscribe to our blogs, troutmanfinancialservices.com and consumerfinancialserviceslawmonitor.com.

And don't forget about all of our other podcasts, the FCRA Focus, the Crypto Exchange, Payments Pros and Moving the Metal. Those are all available on all popular podcast platforms.

And speaking of those platforms, if you like this podcast, let us know. Leave us a review on your platform of choice and tell us how we're doing. Now, as I said, today we're going to be talking about a new set of proposed regulations recently released by Colorado Attorney General under Colorado's newly amended or reenacted AI statute, which is called the Automated Decision Making Technology Act, or that's at least what I call it. And joining me to talk about that is my longtime friend and partner and co-host of our FCRA Focus podcast, Kim Phan. Kim is a partner in our Privacy and Cyber group, but she specializes in privacy and AI issues as it relates to financial services companies. And of course it's always a pleasure to have you on the show, Kim.

Kim Phan (1:23)

Well, thank you for having me, Chris. These are exciting times in the world of AI and ADMT, and excited to be here talking about this particular rulemaking, which I hope gets lots of public comment and amendment before it's finalized.

Chris Willis (1:36)

Yeah, for sure. Because when I read the regulations the day after they came out, I was really quite surprised and disappointed at a number of things in the regulations. Because when the statute had been reenacted basically from scratch in May of 2026, there had been a lot of improvement over the previous version of the statute. And so I was feeling very excited about that. The newly enacted version of the law required the Colorado AG to finalize regulations by January 1, 2027, which is when this law was supposed to go into effect. And also specifically required the attorney general to engage with stakeholders and take comments and do all these other things. And then the proposed regulations came out, you know, in the first half of August of this year.

So, what was your feeling when you read the proposed regulations?

Kim Phan (2:25)

Chris, I had a similar reaction to you. You know, when the ADMT amendments were put into place earlier this year, it was one of those scenarios in which a lot of the process without tangible observable consumer benefit had been removed. A lot of that, such as, you know, some of the bias testing, some of the auditing, some of the, again, a lot of process paperwork, really, as opposed to actual tangible benefit to the consumer.

Chris Willis (2:52)

Yeah, like the annual risk assessments and stuff like that.

Kim Phan (2:54)

Correct. And so that seemed to be a positive move forward, where they were really focusing very narrowly on specific steps that could directly benefit consumers in ways that could be observed, could be tracked, could be monitored with clear metrics. And then the regulations came out and they introduced a lot of the same concepts, process without clear benefit to the consumer, and process that I think will not be practicable for the industry without a lot of technical build and a lot of unnecessary steps that have to be taken. And again, with unknown and limited benefit, I think, to the consumer.

Chris Willis (3:36)

Yeah, I totally agree with you. Well, let's go through some of the highlights of the things that you and I observed when we read these proposed regulations starting with how they define a financial or lending service. And for background, the statute defines a covered ADMT is one that influences a consequential decision about a series of different topics. And the one of those topics that we care about on this podcast is, quote, a financial or lending service. So what do the proposed regulations say about that?

Kim Phan (4:07)

What I found interesting about the definition is that it is written in a way that it appears to be a very exclusive definition.

There's a number of enumerated financial activities that are defined as a financial or lending service, rather than providing examples of what they mean by a financial lending service. And for context, they specifically refer to the extension of a creditor alone, transmitting or exchanging funds, the provision of deposit or checking accounts, check cashing or installment payment plans. And that's it. Those very specifically enumerated items what they consider to be a financial or lending service and all other activities in the financial sector appear to be not included in that definition. For example, collections activity, insurance activity. So are those folks not in scope of the Colorado ADMT Act because the activities they're engaging in would be by this definition excluded from what is a financial or lending service? I think that's unclear.