Senators accuse Upstart, SoFi of discriminatory credit evaluation standards

July 31, 2020. Print article

Three U.S. lawmakers accused fintechs including and SoFi of using credit assessment methods that could result in systemic racial discrimination, and called on the to curb those practices.

Sens. Sherrod Brown (D-Ohio), Elizabeth Warren (D-Mass.) and Kamala Harris (D-Calif.) told the bureau in a letter Thursday that credit evaluations which include non-individualized data, such as the borrower’s school or ZIP code, could disadvantage minority and women borrowers, violating the Equal Credit Opportunity Act.

“The risk of discrimination arises because the lender is not evaluating the applicant based on their own characteristics, but instead based on the characteristics of other students at their school or who were in the same major or program,” the senators wrote.

The lawmakers had previously requested information about borrower assessments from five private lenders, including , . and , as well as , which sells a credit scoring model to lenders and creditors. 

The senators found that Upstart, a private lender that has provided over $3.3 billion in loans since its founding in 2012, factors in which school an applicant attended, and Climb Credit, an education program lender that received a $50 million loan from last year, estimates future income based in part on the applicant’s major or program.

The lawmakers cited testing by the that found Upstart charged higher interest rates and fees to borrowers who attended a historically Black college or university, such as Howard University, than it did to borrowers who attended New York University, which is majority white.

The study found that a Howard graduate “would be charged $3,499 more over the life of five-year loan than a similarly-situated graduate of New York University (presumably because Howard University has a lower average incoming standardized test score than New York University).”

The Consumer Financial Protection Bureau, conceived and promoted by Warren when she was a law professor at Harvard University and brought into being by the 2010 Dodd-Frank financial reform law, oversees consumer lending products, such as auto loans, mortgages, payday loans and student loans. In 2018, the bureau’s acting director, Mick Mulvaney, removed enforcement powers from the office’s fair-lending office, a change that the senators called on the current director, Kathleen Kraninger, to reverse.

“Finally, we renew our call for you to reverse your and Mr. Mulvaney’s decision to strip the CFPB’s Office of Fair Lending of its supervisory and enforcement duties,” the senators wrote. “The findings of our review highlight how important it is that the CFPB have a dedicated office with the necessary resources and expertise to rooting out redlining and other forms of illegal discrimination.”