A Democratic member of the House Financial Services Committee is asking five fintech companies for detailed information about their services to small businesses, disclosures and services to minority-owned firms.
In asking for the information, Rep. Emanuel Cleaver, D-Mo., said that he fears that some fintech companies are discriminating against minorities and taking advantage of borrowers. And, he added, the companies are not subject to the examinations required for community banks and credit unions.
“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.
Cleaver is the ranking Democrat on the Financial Services’ Housing and Insurance Subcommittee.
In announcing the probe, Cleaver said that in recent years, several online companies have begun offering small businesses “merchant cash advances,” in which loans are given to companies in exchange for a percentage of their future credit card receivables.
Cleaver said the cash advances are the equivalent of payday loans for small businesses.
Cleaver said he is concerned that small business borrowers are not protected by laws such as the Truth in Lending 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.
Cleaver earlier this year asked the CFPB to begin an investigation of the fintech sector.
In his letter to the companies, Cleaver asks them to provide information about their company fees, products, disclosures and possibly discriminatory practices.
The companies are: Lending Club, Biz2Credit, Fora Financial, Prosper and LendUp. He requested a response by Aug. 10.
— Check out OCC Releases New Licensing Regulations for Fintech Bank Charters on ThinkAdvisor.