CFPB Fair Lending Report Shows No Appetite for Attacking FinTech

Two reports in June clarify that FinTech lending can expect no arbitrary “fair lending” challenges in next few years.  On June 28, 2019 the CFPB released its Annual Report to Congress on Fair Lending.  This followed a June 10 letter some congress members wrote to the regulatory bodies expressing concern about FinTech fair lending,  Legal review of the letter from congress members found no material challenge as quoted below, and the CFPB report documents that there were no fair-lending enforcement actions in 2018.

“the study cited by the congress members fails to factor in the complex differences in a borrower’s credit history, and that “disparate impact” challenges would likely fail in any court.”

RCGILTNER Services, Inc. provides off-the-shelf digital lending technology to financial institutions to automate lending using FI-controlled underwriting decision rules that mirror loan officer decisions.  The digital lending underwriting is not a "model" as defined by FRB SR-17 or subject to MRM regulatory governance.   We see and expect no regulatory challenges to the significant expansion of digital lending services to better serve consumers and small business, or the great efficiencies FIs experience providing loans digitally.

For more detail, the CFPB Fair Lending report states, “The Bureau’s supervisory and enforcement activity in 2018 focused on mortgage lending, small business lending, and student loan servicing. In 2018, Fair Lending used a number of tools and increased its focus on ensuring fair, equitable, and nondiscriminatory access to credit through: (1) hosting a symposium on credit invisibility; (2) establishing collaboration with the new Office of Innovation; (3) monitoring a No-Action Letter; and (4) prioritizing supervisory reviews of third-party credit scoring models to further the Bureau’s interest in identifying potential benefits and risks associated with the use of alternative data and modeling techniques.” 

The letter from congressional leaders Doug Jones and Elizabeth Warren raised concerns that FinTech companies may create fair-lending concerns with their underwriting methods.  Their letter acknowledges “…fintech products have the potential to expand access to financial products,” but they site a new study that suggests fintech lending could include discrimination.  The study they report in a letter to the CFPB focused on mortgage lending and, in fact, alleges that both face-to-face lending and fintech lending resulted in some minority groups they identify paying higher rates on mortgages.  They state in their letter to the CFPB, “…fintech lenders are as discriminatory as loan officers,” although they allowed results were mixed.  They clearly not only think Fintech lending could be discriminatory but believe an existing refrain that loan officers are as well, despite no fair lending actions in 2018.

Legal and regulatory analysts state any federal legislation is unlikely according legal reviews.  These reviews point out the study cited by the congress members fails to factor in the complex differences in a borrower’s credit history, and that “disparate impact” challenges would likely fail in any court.