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Congressman Emanuel Cleaver

Representing the 5th District of MISSOURI

Congressman Cleaver Calls on the CFPB to Investigate “FinTech” Lending Companies

Mar 15, 2017
Press Release
Regulators must be vigilant about discriminatory small business lending

(Washington D.C.) – Congressman Emanuel Cleaver, II sent a letter to the Director of the Consumer Financial Protection Bureau (CFPB), Richard Cordray, requesting an investigation into FinTech or financial technology companies and whether their small business lending algorithms are discriminatory. The letter is included here.

“FinTech lending companies are part of an alternative and fast-growing industry that makes financial loans to small businesses but they also pose many new risks,” said Congressman Cleaver.

FinTech companies essentially cut-out the “middle man” for many entrepreneurs seeking to start their own business. Examples of FinTech companies include; Prosper, Biz2Credit, Kabbage, and FundBox. Many of these companies use algorithms not subject to public disclosure.

The CFPB is charged with overseeing financial firms for compliance with the Equal Credit Opportunity Act, which forbids the consideration of race, gender, and other factors in the lending process. FinTech lending algorithms may be using data that might have a disparate impact on small business underwriting decisions.

“The silent pickpocket of discrimination shouldn’t thwart the American Dream. Americans looking to start a small business shouldn’t pay higher interest rates because of their race or ethnicity,” said Rohit Chopra, a Senior Fellow at the Consumer Federation of America. Chopra previously served as Assistant Director of the Consumer Financial Protection Bureau.

Some of the complaints against FinTech identified in a Harvard Business School report include:

• High cost annual percentage rates, some reaching above 300%.

• Double Dipping- borrowers charged additional fees each time they renew their loans.

• Hidden prepayment charges- FinTech lenders require payment of full interest even when loans are repaid early.

• Misaligned broker incentives- Small-business loan brokers often recommend the most expensive loans because they earn the highest fees on those loans.

• Stacking- Multiple lenders provide loans to the same borrower, resulting in additional and hidden fees.

“In addition to these findings, I am deeply concerned that some FinTech companies may be using algorithms that shut out hardworking individuals from communities of color from accessing affordable small business credit. It is important to determine if minority-owned small businesses are being charged higher rates, or if they have been subject to predatory rates by these FinTech firms,” Congressman Cleaver stated in the letter.

Emanuel Cleaver, II is the U.S. Representative for Missouri’s Fifth Congressional District, which includes Kansas City, Independence, Lee's Summit, Raytown, Grandview, Sugar Creek, Blue Springs, Grain Valley, Oak Grove, North Kansas City, Gladstone, Claycomo, and all of Ray, Lafayette, and Saline Counties. He is a member of the exclusive House Financial Services Committee, the Ranking Member of the Subcommittee on Housing and Insurance, and also a Senior Whip of the Democratic Caucus. A high-resolution photo of Congressman Cleaver is available here. For more information, please contact Heather Frierson at 816-842-4545 or Heather.Frierson@mail.house.gov.