FinTech Lenders May Be the Key to Solving Discrimination
Case Western Reserve University and the American Institute of Business (AEI) published a new report which revealed that the digitization of mortgages and the rise of FinTech lenders may be exactly what the industry needs to eliminate discrimination in lending.
The new paper, titled “The Impact of FinTech on Discrimination in Mortgage Lending” shows that FinTech lenders have little to no gap when it comes to lending to minorities, even after adjusting for the determinants of mortgage lending. GSE credit risk pricing and loan size.
According to the newspaper, historically loans have been plagued by racism. This began to change with the passage of the Civil Rights Act in 1968, which outlawed discrimination on the basis of race, but the continued lack of funding for minority communities prompted the government to take other measures such as Home Mortgage. Disclosure Act of 1975, which created a system of oversight. for the provision of credit, and the Community Reinvestment Act of 1977, which encouraged the granting of credit to minority borrowers and strengthened enforcement of the Fair Housing Act.
The paper also found that in a matched analysis of observably similar Black and Hispanic borrowers and non-Black and non-Hispanic borrowers, FinTech lenders provide statistically indistinguishable terms to the two groups.
“The mortgage market has always been plagued by racial discrimination, and recent data shows persistent disparities in the terms offered to minority borrowers by traditional lenders,” said Dr Daniel Shoag, associate professor of economics at the Case Western University and co-author of the study. âThis article uses proprietary new data to study the gaps between the terms offered to black and Hispanic borrowers by FinTech lenders. Like the previous literature, he finds that, unlike traditional lenders, FinTech loans do not exhibit statistically significant differences in fee-adjusted terms. “
âThe rise of FinTech lenders has been a game-changer, and our results also suggest that this increased competition has led traditional lenders to adjust their business practices. Said Stan Veuger, co-author of the article and senior economic policy researcher at AEI. “Our data suggests that FinTech can not only reduce racial disparities in the mortgage market by providing credit directly on similar terms, but the growth of these lenders may also drive shifts among non-FinTech lenders.”