Sen. Elizabeth WarrenElizabeth Ann WarrenDemocratic White House hopefuls push to expand health care in US territories Democratic White House hopefuls push to expand health care in US territories Democrats push for tougher oversight on student loan market MORE (D-Mass.)in a letter on Wednesday called on the heads of financial regulatory bodies to provide information on reports that automated lending algorithms may produce discriminatory outcomes.
In the letter, Warren referenced a recently-published analysis that found financial technology (FinTech) companies’ algorithmic models may lead to discriminatory outcomes or overcharges to borrowers.
Warren submitted the letter to the heads of the Federal Reserve, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation and the Consumer Financial Protection Bureau.
“While some FinTech products have the potential to expand access to financial services for underserved populations, we believe these new business models and products also present new challenges for regulators,” wrote Senator Warren.
“Recent research highlights this tension, demonstrating both the opportunity of algorithmic underwriting’s potential to reduce discrimination, while also emphasizing the technologies’ current shortcomings.”
For example, Warren noted, the analysis found that both face-to-face and FinTech lenders charge African-American and Latinx borrowers six to nine basis points higher interest rates than white or Asian borrowers with similar finances.
Similar disparities are found in traditional underwriting, Warren wrote.
“In other words, the algorithms used by FinTech lenders are as discriminatory as loan officers,” Warren wrote. “Berkeley researchers estimate that lending discrimination results in Latinx and African American borrowers ‘paying $250-500M per year in extra mortgage interest.’”
Warren calls on the officials to provide information on their agencies’ efforts to combat lending discrimination by lenders who use algorithms and clarify their agencies’ respective responsibilities for oversight of fair lending laws.
The letter also questions the agency heads on whether they have conducted analyses of their own on the impact of FinTech algorithms on minority borrowers and, if not, whether they plan to conduct them in the future.