Privacy Regulation and Fintech Lending

Abstract

This paper studies how the California Consumer Privacy Act (CCPA), a comprehensive privacy law that grants users control over their data, affects fintech lending. To develop hypotheses we build a parsimonious screening model. Consumers apply for loans with banks and a fintech that has a superior but data-intensive screening technology. However, consumers dislike sharing their data, and in particular with the fintech. We empirically show that the introduction of the CCPA, by assuaging concerns about data sharing, increases mortgage applications with fintechs relative to banks. Consistent with applicants' greater willingness to share data, fintechs make use of non-traditional data to improve screening. In turn, they deny more applications but offer lower interest rates.

Keywords: Privacy, data sharing, fintech, data regulation, CCPA

JEL Classification: G21, G23, G28