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.)

Ballard Spahr's Consumer Financial Services Group handles a wide range of issues related to the CFPB, including designing and overseeing compliance self-assessments (including fair lending), conducting compliance audits, handling responses to civil investigative demands, and preparing clients for and counseling them during CFPB examinations.

The firm's Marketplace Lending Task Force is nationally recognized for counseling marketplace lending businesses in both the consumer and small business spaces. We offer soup-to-nuts guidance, working with startup alternative lenders, long-established market leaders, banks, institutional investors, and others. We document and advise on the structure and strategy of bank, platform, and investor relationships, assist in concluding account servicing arrangements, provide extensive consumer regulatory advice, documentation and diligence assistance, and help with state licensing.


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