A Greenlining Institute report maintains fintech (financial technology) lenders should be subjected to the same rules as banks in the wake of dominating the nation’s home mortgage market.
Per the analysis, the positive potential of fintech activity could be overshadowed by discrimination risks and financial system and housing market stability threats.
“A Fair Financial System: Regulating Fintech and Nonbank Lenders,” released Wednesday, details risks and offers new state and federal regulatory approaches.
“The U.S. mortgage market has shifted radically since 2009,” said Rawan Elhalaby, report’s lead author and manager of the Greenlining Institute’s Senior Economic Equity Program. “Two-thirds of mortgages aren’t written by banks, but by fintech lenders who don’t have to follow the same rules as banks. We know almost nothing about their lending patterns or whether or not they discriminate, and there are reasons for concern about their stability.”
The report suggests there is a lack of transparency and reporting requirements within the fintech industry. It raises questions about the financial stability of fintech lenders; why fintech lenders are not subject to the federal Community Reinvestment Act, a landmark anti-redlining law; and the few federal regulations covering nonbank mortgage lenders – possessing little cash on hand and large amounts of debt.
Per the report recommendations, Congress should modernize the Community Reinvestment Act to cover fintech lenders; states like California can enact state-level regulations; and efforts should be made to advance a racial equity slate among nonbank lender regulations.
“State and federal regulations need a drastic overhaul to keep up with these trends and avoid another financial crisis caused by predatory mortgage lending,” Debra Gore-Mann, president and CEO of The Greenlining Institute, said. “These institutions are targeting communities historically denied access to financial products and services from traditional banks.”