The Government Accountability Office (GAO) recently issued recommendations to the Bureau of Consumer Financial Protection (BCFP) and banking regulators regarding fintech underwriting data use and fair lending compliance.
While the GAO said fintech, or financial technology, can be useful in connecting lenders and borrowers online, information received from some fintech lenders revealed they use alternative data to help determine borrowers’ creditworthiness.
Using alternative data could make loans available to more people, but could also have an unintended impact, such as fintech lenders being unaware of how to use the data and still comply with fair lending laws.
The GAO said BCFP had supervisory authority over some fintech lenders and noted the three fintech lending segments that GAO reviewed are personal, small business and student loans.
The GAO is recommending BCFP and the federal banking regulators communicate in writing to fintech lenders and banks that partner with fintech lenders, respectively, on the appropriate use of alternative data in the underwriting process.
The analysis involved reviewing several fintech lending issues, including describing recent trends in fintech lending and examining fintech lenders’ use of alternative data and the extent to which federal agencies monitor lenders’ use of the data.
Officials said there were also reviews of literature and agency documents; analysis of relevant federal guidance; interviews with agency officials and industry stakeholders; and data collected from 10 fintech lenders.
The agencies each stated that they plan to take action to address the GAO’s recommendations.