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Congressman Cleaver Announces Findings Following Investigation into FinTech Small Business Lending Practices

Aug 17, 2018
Press Release
Greater Commitment Needed by Fintech Firms to Ensure Automated Algorithms Protect Against Discrimination in Loan Applications

(Washington, D.C.) – Congressman Emanuel Cleaver, II announced today the findings of his investigation into the small business lending practices of Financial Technology (FinTech) companies. Last year, Congressman Cleaver launched an investigation to study the methods that FinTech companies use to protect consumers against discriminatory practices. One of the primary focuses of the survey was the use of automated algorithms in loan applications. While many FinTech companies claim their algorithms protect against discrimination, many respondents failed to demonstrate how they protect consumers from unintentional discrimination. It is imperative that automated lending algorithms avoid geographical and race-based biases.

Companies mentioned in this investigation include LendUp, Fora Financial, Biz2Credit, Kabbage, LendingClub, and OnDeck Capital, Inc. It should be noted that LendUp is in fact a consumer lending company, however they agreed to participate in this investigation.

“The initial findings are clear as day. We need to further understand how lenders may be intentionally or unintentionally offering higher interest rates to minorities and underserved communities, and work to implement industry-wide best practices” said Congressman Cleaver.

The investigation results can be read here.

Three key findings in the investigation revealed:

1.) FinTech loans are more likely to be used by minority-owned companies

2.) More action is needed in order to limit unfair business practices

3.) Some participants have implemented practices that should be widely adopted

Some companies disclosed existing measures that help prevent discrimination, such as utilizing third-party fair lending audits that analyze loan origination data to determine whether there are statistically significant discriminatory markups. However, the investigation also uncovered problematic practices, such as extracting a customer’s personal credit score in order to determine a business’s credit worthiness, and utilizing forced arbitration clauses that forbid the borrower to take the lender to court.

During the 115th Congress, Congressman Cleaver has made it a priority to protect consumers as technology continues to rapidly expand. These initiatives include:

• Writing to the Internet Association (IA) demanding the organization monitor social media platforms and work to stop the spread of racial and gender bias. The letter can be read here. In response to Congressman Cleaver’s call to action, the Internet Association (IA) created a new initiative and Director of Diversity and Inclusion Policy position within the organization, to work on diversity and workforce policies in the tech industry.

• Writing to the CEO’s of Twitter and Facebook encouraging them to combat the spread of racially divisive communications on social media and encouraging them to hire more African Americans on their senior staff.

• Meeting with Facebook’s COO, Sheryl Sandberg, along with members of the Congressional Black Caucus, to discuss allegations that Russian-backed agencies exploited the company’s system to influence the outcome of the 2016 presidential election.

• Sending letters to the Bitcoin Foundation and the Chamber of Digital Commerce calling on them to do more to prevent extremists groups from using cryptocurrency to fund their radical and violent agendas. Those letters can be found here and here.

This summer, Congressmen Cleaver hosted a FinTech Roundtable in Kansas City, Missouri. At the roundtable, leaders of several FinTech companies, financial institutions and lawmakers discussed the future of FinTech, servicing the underserved, and the importance of enhancing diversity in the technology industry.

“I believe FinTech lending has the potential to be advantageous for small businesses looking to get a leg up in a competitive market, but I also believe they must be honest, transparent and inclusive,” said Congressman Cleaver.

Congressman Cleaver will continue to advocate for oversight of the industry, including the completion of the Consumer Financial Protection Bureau’s small business data collection rulemaking, that will help law enforcement detect and deter small business lending discrimination.

 

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. For more information, please contact Heather Frierson at 816-842-4545 or Heather.Frierson@mail.house.gov A high-resolution photo of Congressman Cleaver is available here.