Emanuel Cleaver Finds Discrimination in Fintech Small Business Lending Practices
Congressman Emanuel Cleaver (D-MO)launched an investigation in 2017 to study the methods that fintech companies use to make their lending decisions and, specifically, if those companies do enough to safeguard against discrimination when they assess creditworthiness. The report, released last week, found that some companies could be discriminating against minorities and now the congressman is calling for more transparency from the fintech sector. The report revealed that certain fintech business lenders are using personal credit scores to determine small business loans, a practice also in place at traditional banks that tends to disadvantage minority applicants while having questionable predictive power. The report also criticized fintech companies for being “willfully vague” about the algorithms used to determine loan eligibility. Cleaver also 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. “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.” Cleaver’s office said that 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. Among the companies investigated were Biz2Credit, Fora Financial, Kabbage, LendingClub, Lendup, and OnDeck Capital, Inc. More here.