Lawmaker Seeks CFPB Fair Lending Investigation of Fintech Small Business Lenders

Ballard Spahr LLP

A Democratic congressman has raised concerns about potentially discriminatory lending practices used by financial technology (fintech) companies that extend credit to small businesses, calling on the Consumer Financial Protection Bureau (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 CFPB Director Richard 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 include:

  • When does the CFPB anticipate "finalizing regulation and guidance to fully implement" Dodd-Frank Section 1071? Section 1071 amended the Equal Credit Opportunity Act (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.

  • Whether the CFPB has engaged in any supervisory activities over fintech small business lenders and, if so, whether it has identified problems with their ECOA compliance. In its February 2017 request for information about the use of alternative data and modeling techniques in the credit process, the CFPB specifically noted that because it has authority relating to small business lending, it would welcome information about alternative data and modeling techniques in business lending in addition to consumer lending.

  • Whether the CFPB will solicit complaints through its consumer complaint portal "from consumers, particularly those from communities of color…who feel they have been discriminated against" by a fintech company offering small business loans. (Last March, the CFPB began accepting consumer complaints about loans obtained through marketplace lenders.)


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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