Two legal cases highlight what could go wrong with banks’ AI chatbots

The trend: Two recent legal cases involving AI chatbots highlight the financial and reputational risks that banks face if they make similar missteps, per American Banker.

What happened: Earlier this year, a Canadian court ruled against Air Canada after its chatbot gave incorrect information about a funeral policy. The airline's defense that the chatbot was a separate legal entity was dismissed. 

And there’s a lawsuit alleging that outdoor clothing company Patagonia allowed its contact center vendor, Talkdesk, to record and analyze customer service calls without proper consent, violating California's data privacy laws, per American Banker. 

AI-related regulation is a work in progress: Like Air Canada, many banks use AI for customer interactions, including chatbots and contact center software. If these AI systems provide incorrect information or fail to comply with regulations, banks could be held liable.

The Patagonia case raises concerns about transparency and consent in AI-driven customer service practices, paralleling issues faced by banks using similar technologies.

The trend: Forty-eight percent of surveyed US bank executives plan to use genAI to enhance customer-facing chatbots and virtual assistants, per an October 2023 Google Cloud survey. And by the end of 2026, 35.1% of adult consumers in the country will use AI-enabled banking chatbots, per an EMARKETER forecast.

The volume of customer interactions banks’ chatbots can be enormous, spreading out the risk widely. For example, Bank of America’s Erica has had over 50 million client requests since 2018, per PYMNTS. 

The potential consequences: While Patagonia’s lawsuit has yet to go to trial, it risks bringing significant legal costs and penalties. 

Air Canada was only liable for about $800 in damages and court fees for its mishap, but bigger errors could result in catastrophic consequences if many customers seek compensation at once.

What’s next: As AI chatbots handle increasingly sensitive financial data, data privacy and security will attract more scrutiny. Financial regulators are likely to introduce stricter guidelines to ensure that AI systems comply with applicable laws.

Banks shouldn’t wait until financial regulators come knocking to ensure they won’t make the same mistakes as Air Canada and Patagonia.