A report from the Greenlining Institute claims that fintech (financial technology) lenders should be subject to the same rules as banks after they dominate the country’s mortgage market.
According to the analysis, the positive potential of fintech activities could be overshadowed by risks of discrimination and threats to the stability of the financial system and the housing market.
“A Fair Financial System: Regulating Fintech and Non-Bank Lenders,” released Wednesday, outlines the risks and offers new state and federal regulatory approaches.
“The US mortgage market has changed radically since 2009,” said Rawan Elhalaby, lead author of the report and manager of the Greenlining Institute’s Senior Economic Equity Program. “Two thirds of mortgages are not 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 is cause for concern about their stability. “
The report points out that there is a lack of transparency and reporting requirements in 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 for non-bank mortgage lenders – those with little cash and large debt.
As recommended in the report, Congress should modernize the Community Reinvestment Act to cover fintech lenders; States like California can regulate the state at the state level; and efforts should be made to promote a racial justice scale under the rules for non-bank lenders.
“State and federal regulations need to be drastically revised to keep up with these trends and avoid another financial crisis caused by predatory mortgage lending,” said Debra Gore-Mann, President and CEO of the Greenlining Institute. “These institutions target communities that have historically been denied access to financial products and services from traditional banks.”