“FinTech lending companies, also known as alternative small-business lending, are a fast-growing industry offering a new wave of innovation—and also pose many new risks,” Cleaver said in a news release.
The congressman sent a letter
to various emerging FinTech small business lenders with questions on their company products, fees and methods on disclosures and potentially discriminatory practices. Their responses are expected by August 10.
Cleaver’s concern stems from the vulnerability of small business borrowers from the lack of disclosure requirements under the Truth in Lending Act and how small business lenders are not required to supervisory exams despite complying with anti-discriminatory laws such as the Equal Credit Opportunity Act.
“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,” Cleaver said. “It is therefore important to determine if minority-owned small businesses are being charged higher rates, or if they have been subject to predatory fees by these FinTech firms.”
Cleaver also sent a letter
to the Consumer Financial Protection Bureau (CFPB) in March, asking them to investigate FinTech lenders as well.
“While the CFPB’s primary focus is on protecting consumers, the Congress also gave clear authority for the agency to protect borrowers of small business loans from discriminatory practices. 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. The CFPB must use its authorities under the Equal Credit Opportunity Act to combat these abuses.”
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Rep. Emanuel Cleaver, II (D-Missouri) has launched an investigation on small business FinTech lending, which includes online companies with payday loan-like products for small businesses and individual consumers.