Regulating Fintech Lending

Abstract

This essay briefly explains fintech lending, focusing on its differences from traditional lending. It argues that innovations in fintech lending could improve on the status quo in financial services. The status quo is problematic because traditional credit-scoring techniques often prevent the so-called Credit Invisible from accessing credit and because the limited set of data points used to calculate traditional credit scores may discriminate against the most vulnerable Americans. Fintech lending has the potential to reduce discrimination in financial services, both by directly expanding access to credit, especially to marginalized communities, and by indirectly encouraging innovation in the financial services sector. As a result, this essay expresses particular concern with restricting innovation by fintech lenders. Applying the existing regulatory framework to fintech lenders may do more harm than good, even though fintech lenders also have the potential to “perpetuate, exacerbate or mask harmful discrimination.” A key task for fintech regulators is to promote the promise of fintech lending, while mitigating its most perilous aspects, which may generally require taking a wait-and-see approach rather than strictly regulating fintech lenders.

Keywords: Fintech, Discrimination, CFPB, FTC, ECOA, UDAP, UDAAP, Algorithm, Lending, AI, Marketplace Lending, Fintech Lenders, Machine Learning, Predictive Analytics, Law, Regulation, Credit-score, Credit Invisible, Big Data