As Artificial Intelligence (AI) becomes commonplace and integrated within consumer products and services, the legal industry will be on the lookout for opportunities to file lucrative litigation against the providers of AI technology. Creative law firms look to exploit existing laws to file expensive class actions.

Many of these laws were never intended to be applied to AI, but as with so many other existing regulations law firms have distorted the original purpose to obtain rich class action settlements. Cases in point include the recent flood of AI lawsuits involving wiretapping statutes.

CIPA and the rush to file suit

In 1967, the California Invasion of Privacy Act (“CIPA”) was written to discourage the interception of communications through the physical compromise of telephone landlines. While the California legislature certainly could not anticipate the rise of AI technology in the 2020s, nonetheless CIPA has become the latest battleground for law firms looking for an easy payday.

CIPA is attractive to law firms because the law requires consent of all parties to a communication. CIPA includes fines up to $5,000 per violation in addition to attorney’s fees and court costs. A successful class action settlement therefore will result in a substantial payday for the law firm filing the suit. In addition, settlement of one set of cases does not preclude future lawsuits against the same organization if further violations are found.

As with so many of these types of suits, the issue comes down to notification and consent. Organizations that contract with third parties to provide AI solutions that record consumer communications without the consumer’s knowledge and consent are at risk. Courts may consider CIPA to be violated if, for example, a credit union uses third-party AI to record a conversation with a consumer that is made accessible to the third party without the member’s consent.

AI tracking technologies that record a consumer’s interactions with a website and then pass that information to a third party without consent have also been the subject of CIPA litigation. Courts have not yet decided whether a consumer’s voluntary use of a website constitutes consent. Unless efforts are made by courts to restrict broad definitions of AI “wiretapping,” law firms have an incentive to file these lawsuits in the hope of receiving a substantial settlement.

How credit unions can avoid the pitfalls

There are ways for an organization to protect itself from these lawsuits when using AI. First is to ensure consumer information is not being sent to third parties through AI technology without the knowledge and consent of the consumer. Opt-In mechanisms and disclosures, such as the ones commonly used with tracking cookies, are good methods to minimize the risk related to consent.

Updating privacy notices, which is mandatory for credit unions under the Gramm Bliley Leach Act (“GLBA”), should include transparent disclosures on how AI technology is deployed and used. Legal review of AI technology deployments can be critical, as well as ensuring contracts with third-party AI technology providers protect the organization against the misuse of consumer data.

Law firms file these class action lawsuits not just because of the possibility of a rich payday upon settlement, but also because by filing these claims the firm can advertise their actions as protecting consumer’s rights. Even if the claims for violating CIPA dry up or are thrown out of court, law firms are incentivized to be creative and look for ways to exploit consumer interactions with AI technology.

AI may provide great benefits to consumers, but organizations are warned that there will always be a new frontier of litigation as AI becomes integrated with products and services. By being good stewards of consumer privacy, knowing where and how consumer information is collected and used, and being transparent with consumer communications about their information, organizations can reduce the risks of these lawsuits as well as maintaining a good reputation with its current and future consumers.