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Fintech Investigative Report

Last year, Congressman Cleaver launched a groundbreaking investigation into the small business lending practices of Financial Technology (FinTech) companies, studying the various methods companies use to protect against discriminatory practices. One of the primary concerns raised by Congressman Cleaver was the specific algorithms used by FinTech firms. While many FinTech firms claim these algorithms protect against discrimination, they have generally provided little evidence into how they are utilized to do so. The questions surrounding the algorithms are particularly troubling because, in some cases, they have the ability to utilize certain information about loan-seekers without their knowledge. Information collected can come from a wide range of sources, including the loan seeker’s Twitter or Facebook profiles, specifically who they follow, and the number of criminal records and/or bankruptcies in the loan seeker’s zip code. Not only is this information unrelated to the purposes of loan-seeking, it can be used to discriminate against certain people, predominantly lower-income borrowers and people of color. The following report includes the detailed findings of Congressman Cleaver’s investigation.

Building Immigrant Financial Security

The California Reinvestment Coalition (CRC) consulted nonprofit members, partners, and allies, including financial services providers, to develop recommendations for banks on how to better support immigrant clients in the current political climate.

Improving Small Business Financing

The report starts with background and context on the importance of small businesses to the U.S. economy as well as recent trends in small business health and access to credit. The first section discusses ways to improve the quality and quantity of data available on small business financing. Good data are necessary both to improve credit-application processes and to enable lawmakers and regulators to make better-informed decisions when developing government policy. The second section reviews the financial regulation that impacts access to credit for small businesses and recommends ways to recalibrate regulations to make them more efficient and effective. The third section delves into how to make U.S. capital markets work better for small businesses. The final section sets forth ideas on how policymakers can promote innovation in financial products and services and better integrate technology into financial markets.

Small Business Perspectives on Online Lenders

This report discusses findings of a study conducted by the Federal Reserve Board and the Federal Reserve Bank of Cleveland to gauge small business owners’ perceptions of online lenders and their understanding and interpretation of information online lenders use to describe their credit products. The Federal Reserve has an ongoing interest in small businesses and their access to the credit they need to succeed and grow. As the small business credit market evolves, prompting discussion about borrower protections, the perspectives of small business owners are an important consideration.

Advancing Minority Small Business Capital Access

Through the Milken Institute and U.S. Small Business Administration (SBA) Partnership for Lending in Underserved Markets (PLUM) initiative, we are learning how to improve collaborative efforts in a given market and around specific capital access solutions. There have been many across-the-board lessons learned through our local pilot programs and national work to date. Some speak to approaches to partnership and coalition-building while others are reflections and recommendations for existing capital and technical service providers.

2017 Employer Firms Credit Survey

The Federal Reserve released “2017 Small Business Credit Survey: Report on Employer Firms.” Learn more about how small business owners nationwide are faring, including their credit needs and challenges. The report examines the results of an annual survey of small business owners nationwide and focuses on small employer firms, businesses with 1-499 full- or part-time employees.

Building Inclusive Ecosystems

This report examines opportunities to further enhance inclusion and support of current and future women founders in Washington, D.C.’s entrepreneurial ecosystem. Its analysis provides an overview of women-owned businesses both nationally and in Washington, D.C., makes four top-level recommendations with pragmatic strategies for implementation, and highlights existing approaches to inclusive development.

2017 Disaster-Affected Firms Credit Survey

The Federal Reserve Banks of San Francisco, New York, Dallas, and Richmond issued the 2017 Small Business Credit Survey: Report on Disaster-Affected Firms. This is the first in a series of reports this year examining the results of an annual survey of small business owners. 61 percent of affected firms had revenue losses ranging from $1-$25,000, and 35 percent had revenue losses over $25,000.

Supporting Returning Citizen Entrepreneurs

Credit Builders Alliance released Achieving Credit Strength: A Toolkit for Supporting Returning Citizen Entrepreneurs. This toolkit provides financial capability and reentry practitioners with tools and resources for helping returning citizens to build strong credit, and strong businesses. In conjunction with the release of this toolkit, CBA is hosting convenings in partnership with community leaders that are experts in this space. Participants will have the opportunity to interact with the toolkit and national experts discussing credit building, entrepreneurship and ways to support the financial stability of returning citizens pre- and post-incarceration. See below for more details on each convening.

One Year of Equity Crowdfunding

On May 16, 2016, the U.S. Securities and Exchange Commission’s
new investment crowdfunding rule, Regulation Crowdfunding
(Regulation CF), went into effect, marking an important step in
the federal government embracing financial technology (FinTech)
to increase access to capital for small businesses. Regulation Crowdfunding enabled small businesses to raise up to $1,000,000 annually by offering and selling securities through internet-based crowdfunding campaigns. This issue brief analyzes all crowdfunding filings made pursuant to Regulation CF during the first year of activity (May 16, 2016 – May 16, 2017). It highlights key attributes of the firms that have attempted to raise capital through this financing method, including firm location, legal structure, age, employment, and gender. This analysis also
describes trends among the online intermediaries responsible for hosting the campaigns as well as transactional characteristics, such as the type of securities offered and the amount of capital sought and raised. The paper concludes with a discussion of policy implications for small businesses seeking capital through
crowdfunding and other innovative financing methods.