A Democratic congressman has raised concerns about potentially discriminatory lending practices used by fintech companies that extend credit to small businesses, calling on the CFPB “to vigorously investigate whether [such fintech companies] are complying with all anti-discrimination laws, including the Equal Credit Opportunity Act.”
In a letter to Director Cordray dated March 15, 2017, Representative Emanuel Cleaver, II, stated that fintech companies “geared toward lending to small businesses by using certain biased algorithms for creditworthiness have the potential of charging disproportionately higher rates to minority-owned businesses.” He asserted that, as a result, it is important “to determine if minority-owned small businesses are being charged higher rates, or if they have been subject to predatory fees” by fintech companies.
In addition to urging the CFPB to launch an investigation, Rep. Cleaver requested responses to a series of questions that included when the CFPB anticipates “finalizing regulation and guidance to fully implement” Dodd-Frank Section 1071. Section 1071 amended the ECOA to require financial institutions to collect and maintain certain data in connection with credit applications made by women- or minority-owned businesses and small businesses. Such data include the race, sex, and ethnicity of the principal owners of the business. The CFPB has not yet proposed a rule to implement Section 1071. In its Fall 2016 rulemaking agenda, the CFPB estimated a March 2017 date for prerule activities.
For more on Rep. Cleaver’s letter, see our legal alert.