Fintechs have more work to do to prevent discrimination: Congressman
WASHINGTON — A House Democrat warned Friday that more action is needed to protect small-business borrowers from discrimination after releasing results of a survey on fintech lending practices.
Rep. Emanuel Cleaver of Missouri launched the survey last year to study the methods that fintech companies use to protect consumers from discrimination. It focused largely on the use of automated algorithms in loan applications, which fintech companies claim can reduce the risk of discrimination in lending decisions.
But Cleaver said the investigation revealed unsatisfactory business practices, including using forced arbitration clauses that prohibit the borrower from filing a lawsuit against the lender and extracting a customer’s credit score to determine his or her creditworthiness.
“The initial findings are clear as day,” he said in a statement. “We need to further understand how lenders may be intentionally or unintentionally offering higher interest rates to minorities and underserved communities, and work to implement industry-wide best practices.”
Some of the companies surveyed did report using third-party fair-lending audits that analyze loan origination data to determine if there are statistically significant discriminatory markups, according to a release from Cleaver’s office.
In October, Cleaver led another investigation that found minorities are more likely to seek out a fintech company when looking for a business loan, but they may also pay higher rates.
Cleaver has emerged as one of the most prominent members of Congress looking into fintech companies, voting in favor of legislation supported by online lenders but also calling for Congress to consider how it oversees the companies.
The companies surveyed in the investigation include LendUp, Fora Financial, Biz2Credit, Kabbage, LendingClub and OnDeck Capital Inc.