Warren, Jones press regulators on fintech lending discrimination

WASHINGTON — Sens. Elizabeth Warren, D-Mass., and Doug Jones, D-Ala., are calling on regulators to ensure that algorithms used by financial technology platforms don’t result in discriminatory lending.

In a letter to the heads of the Federal Reserve Board, Office of the Comptroller of the Currency, Federal Deposit Insurance Corp. and the Consumer Financial Protection Bureau, the senators highlighted research from the University of California, Berkeley that found algorithmic lending can make it easier to apply for mortgages but can also lead to higher interest rates for African-American and Hispanic borrowers.

The research found that algorithmic lending, by increasing competition, “appeared to reduce the likelihood that the loan applications of borrowers of color are rejected — thus reducing discrimination in lenders’ ‘accept/reject’ decision-making process,” Warren and Jones wrote.

Sen. Elizabeth Warren, D-Mass.
Senator Elizabeth Warren, a Democrat from Massachusetts and 2020 presidential candidate, speaks during an Iowa Democratic Party Hall of Fame event in Cedar Rapids, Iowa, U.S., on Sunday, June 9, 2019. Iowa, the first-in-the nation caucus state, is hosting 19 presidential hopefuls this weekend for its annual Hall of Fame celebration, a fundraiser for the state Democratic Party in Cedar Rapids on Sunday. Photographer: Daniel Acker/Bloomberg
Daniel Acker/Bloomberg

However, the research also found that African-American and Hispanic borrowers were charged interest rates 6 to 9 basis points higher than comparable white and Asian borrowers.

“In other words, the algorithms used by fintech lenders are as discriminatory as loan officers,” the senators wrote.

Specifically, the senators are asking the regulators what they are doing to identify and combat discrimination by lenders that use algorithms, to what extent the regulators’ responsibility to oversee fair lending laws extends to the fintech industry, and whether they have identified unique challenges to oversight of those laws by the fintech industry.

They are asking if the agencies have conducted analysis of the impact of fintech algorithms on minority borrowers, including differences in credit availability and pricing and whether they have identified increased cases of lending discrimination in fintech.

And they are asking if there are any additional statutory authorities that would help regulators better enforce fair lending laws or protect minority borrowers from discrimination in their interactions with the fintech industry.

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Fintech regulations Digital mortgages Digital banking Fintech Elizabeth Warren Senate Banking Committee Federal Reserve FDIC OCC CFPB News & Analysis
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