Sen. Elizabeth WarrenElizabeth WarrenFederal Reserve officials' stock trading sparks ethics review Manchin keeps Washington guessing on what he wants Warren, Daines introduce bill honoring 13 killed in Kabul attack 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," Warren wrote.
"Recent research highlights this tension, demonstrating both the opportunity of algorithmic underwriting's potential to reduce discrimination, while also emphasizing the technologies' current shortcomings," she added.
For example, Warren noted, the analysis found that both face-to-face and fintech lenders charge African American and Latino borrowers interest rates that are six to nine basis points higher than those they charge white or Asian borrowers with similar finances.
Similar disparities are found in traditional underwriting, Warren said.
"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 called on the officials to provide information on their agencies’ efforts to combat lending discrimination by lenders who use algorithms and to clarify their agencies’ respective responsibilities for oversight of fair lending laws.
The letter also questioned 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.