Findings from Federal Reserve Bank of Philadelphia in the Area of COVID-19 Reported (Did Fintech Loans Default More During the Covid-19 Pandemic? Were Fintech Firms “cream-skimming” the Best Borrowers?): Coronavirus – COVID-19

2025 JUL 18 (NewsRx) -- By a News Reporter-Staff News Editor at CDC & FDA Daily -- Researchers detail new data in Coronavirus - COVID-19. According to news reporting originating from Philadelphia, Pennsylvania, by NewsRx correspondents, research stated, “A growing portion of consumer credit has been devoted to unsecured personal installment loans. Fintech firms have been active players in this market, with an increasing market share, while the market share of banks has declined.”

Our news editors obtained a quote from the research from the Federal Reserve Bank of Philadelphia, “This paper uses recent loan data, including that from the Covid-19 pandemic period, and finds that a proprietary loan rating system that leverages alternative data and artificial intelligence and/or machine learning could both disaggregate the risk beyond those predicted by a traditional credit risk model and identify the ‘invisible prime’ consumers from the nonprime pool. This loan rating system continued to perform well during the pandemic despite the unexpected adverse economic shock that affected consumers unevenly. It contained different information than the traditional measure of credit risk, and the inclusion of both measures in the regression analysis improved the fit of the model. We also show that default rates for nonprime consumers are much lower on LendingClub installment loans than on traditional consumer loans during the pandemic period. In exploring the potential cream-skimming, we find that there is an additional factor that is correlated with default but uncorrelated with credit scores, alternative ratings or economic factors.”

According to the news editors, the research concluded: “This unique factor, which is not captured by the typical credit risk model but is important in determining a loan’s default probability, is likely responsible for some believing in the occurrence of cream-skimming behavior.”

This research has been peer-reviewed.

For more information on this research see: Did Fintech Loans Default More During the Covid-19 Pandemic? Were Fintech Firms “cream-skimming” the Best Borrowers? Journal of Credit Risk, 2025;21(1). Journal of Credit Risk can be contacted at: Incisive Media, Haymarket House, 28-29 Haymarket, London, SW1Y 4RX, England.

The news editors report that additional information may be obtained by contacting Julapa Jagtiani, Federal Reserve Bank of Philadelphia, 10 N Independence Mall W, Philadelphia, PA 19106, United States. Additional authors for this research include Brandon Goldstein and Catharine Lemieux.

The direct object identifier (DOI) for that additional information is: https://doi.org/10.21314/JCR.2024.010. This DOI is a link to an online electronic document that is either free or for purchase, and can be your direct source for a journal article and its citation.

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