Report calls for increased regulation of fintech
A report from the Greenlining Institute argues that fintech (financial technology) lenders should be subject to the same rules as banks as a result of the dominance of the domestic mortgage market.
According to the analysis, the positive potential of the fintech business could be overshadowed by the risks of discrimination and threats to the stability of the financial system and the housing market.
“A Fair Financial System: Regulating Fintechs and Non-Bank Lenders,” published Wednesday, details the risks and suggests new state and federal regulatory approaches.
“The US mortgage market has changed dramatically since 2009,” said Rawan Elhalaby, lead author of the report and director of the Greenlining Institute’s Senior Economic Equity program. “Two-thirds of mortgages are not taken out by banks, but by fintech lenders who don’t have to follow the same rules as banks. We know next to nothing about their lending models or whether or not they are discriminatory, and there is reason to be concerned about their stability. “
The report suggests that there is a lack of transparency and reporting requirements within the FinTech industry. This 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 non-bank mortgage lenders – with little cash on hand and large amounts of debt.
According to the report’s recommendations, Congress should modernize the Community Reinvestment Act to cover fintech lenders; states like California can adopt state-level regulations; and efforts should be made to advance a racial equity list among the regulations of non-bank lenders.
“State and federal regulations need to be fundamentally overhauled to keep up with these trends and avert another financial crisis caused by predatory mortgages,” said Debra Gore-Mann, president and CEO of the Greenlining Institute. “These institutions target communities historically deprived of access to financial products and services from traditional banks. “