The Federal Trade Commission recently issued a proposed policy statement that could reshape how financial services firms use AI-powered tools. The proposed statement, titled “Proposed Policy Statement Concerning the Suppression of Accuracy in Artificial Intelligence Systems,” puts AI developers on notice that altering AI outputs away from accuracy, even if done to comply with a state law, may constitute consumer deception under Section 5 of the FTC Act.

The Core Theory: Accuracy Suppression as Deception

In December 2025, the Administration issued an Executive Order calling for the FTC to issue a policy statement on the application of the FTC Act’s prohibition on unfair and deceptive acts or practices to AI models. Stemming from that request, the Commission has asserted that AI companies that “steer the outputs of their AI systems toward unexpected objectives, and away from the objectives set by or reasonably expected by users, are likely to deceive consumers in violation of Section 5 of the FTC Act.” While the employment of AI tools in financial services may be novel, the FTC is applying its well-established three-part deception test from its 1983 Policy Statement to modern technology: first, there must be a representation, omission or practice that is likely to mislead the consumer; second, the consumer must be acting reasonably under the circumstances; and third, the representation, omission or practice must be material, such that it is “likely to affect the consumer’s conduct or decision with regard to a product or service.”

AI companies market that their systems aim to produce outputs that achieve users’ objectives as faithfully and accurately as they can. The FTC remarks that these representations, “absent adequate disclaimers or qualifications,” are material because consumers rely on them to assess whether a particular system is best suited to accomplish their objectives. The Commission expressed concern that consumers may be induced to pay for a service that does not behave as advertised or be deceived into relying on a technology that produces worse outputs if the “AI developer’s hidden agenda subverted consumers’ objectives.”

The State Law Dimension: Colorado and Implied Preemption

The proposed statement specifically discusses the interplay between AI system development and state law compliance. Colorado’s original Artificial Intelligence Act, for example, imposed a broad duty on AI companies to avoid outputs that might lead to disparate impacts. The revised version of that law, which was recently adopted in May 2026, previously discussed here, explicitly provides that AI companies can be held liable for discriminatory outcomes caused by their customers’ use of their products. The FTC acknowledges that, in order to avoid liability under this law, AI companies may be motivated to suppress accuracy to provide more equitable outputs. However, based on the proposed statement, companies deploying AI tools could be liable for deceptive practices under Section 5 if they fail to disclose how embedding state law compliance into their models may diminish accuracy.

The FTC takes the position that compliance with a state law is not a defense to a Section 5 violation. As the statement explains, “a company’s motives for deceiving consumers are irrelevant to the application of Section 5,” and state law is “impliedly preempted to the extent it conflicts with a federal regulatory scheme”. This implied preemption argument could have broad implications for the growing patchwork of state laws governing AI.

Why This Matters for Consumer Finance

Consumer finance practitioners should pay close attention for several reasons.

AI adoption in financial services is accelerating.

Consumers are increasingly turning to AI for financial advice, and AI tools are being integrated into lending, underwriting, and customer-facing applications across the industry. The proposed statement’s framing of consumer expectations, particularly the finding that consumers accept AI outputs without further fact-checking over 90% of the time, underscores how heavily consumers rely on AI outputs and the importance of disclosures regarding the basis of recommendations and other advice.

Fair lending and anti-discrimination compliance may be affected.

Many financial institutions have been building AI governance frameworks designed to detect and mitigate disparate impact in lending and credit decisions. The proposed statement’s skepticism of laws that require AI companies to avoid disparate-impact outcomes raises questions about how the FTC will view bias-mitigation measures in AI-driven financial products. Financial institutions and their AI vendors will need to carefully evaluate whether their bias-testing and output-adjustment practices could be characterized as “suppressing accuracy” under this framework.

Disclosure obligations are heightened.

The FTC acknowledges that AI companies can shape consumer expectations through clear and conspicuous disclosures about their systems’ objectives. However, disclaimers cannot be buried in terms of service and must plainly dispel the notion that the system is designed to produce the most accurate answer. For consumer-facing AI products in financial services, this means disclosures about model limitations, output adjustments, or design choices will need to be front-and-center. Moreover, the more the disclosure conflicts with consumers’ reasonable expectations, the more persistent and prominent it must be.

Hallucinations are treated differently.

The FTC draws a distinction between accuracy suppression driven by design decisions and incorrect outputs resulting from technological limitations (i.e., hallucinations). The FTC does not believe hallucinations “in and of themselves” raise Section 5 issues, though misrepresenting the likelihood of hallucinations could still constitute deception. This view departs from past CFPB Guidance on the use of chatbots in consumer finance. In 2023, the CFPB warned about the grave consequences that can result when a person relies on a chatbot backed by unreliable technology or inaccurate data. “In instances where financial institutions are relying on chatbots to provide people with certain information that is legally required to be accurate, being wrong may violate those legal obligations.” However, while not completely doing away with this concern, we think this departure is consistent with the current administration’s cautious optimism toward advancing AI integration in financial services.

Looking Forward

The public comment period closes July 31, 2026. Given the FTC’s direction, financial institutions and their AI vendors should begin evaluating their AI governance frameworks to ensure that any output adjustments are accompanied by adequate, prominent disclosures and are defensible under the accuracy-focused lens articulated by the FTC.