Lender Liability, Tech E&O, and the Converging Risk Landscape of Modern Lending Platforms

By URM | Upward Risk Management

Executive Summary

The financial services industry is undergoing a transformation. Human-led lending processes are being replaced (or augmented) by software, automation, and artificial intelligence. With that change comes a growing wave of legal exposure that most companies aren't insured for, and many barely understand.

This white paper explores the evolving world of lender liability, how it intersects with LenderTech platforms, and why traditional insurance structures fail to respond. Whether you are a fintech company, digital lender, or bank relying on third-party technology, you need to understand how these risks develop - and how to ensure your insurance protects you.

At URM, we combine legal, technical, and underwriting expertise to map these risks, model their financial impact, and structure policies that actually respond. Our CEO, Steven Barge-Siever, is an attorney, former general counsel, and leader in both traditional brokerage firms and insurtech startups. He’s led this transformation from every angle: the law, the boardroom, the claim, and the product design meeting.

We built Undr AI to close the coverage gap - and make insurance work the way it should.

From Bankers to Code: How Lender Liability Has Evolved

Traditionally, the loan process was human. Loan officers handled intake. Underwriters made decisions. Compliance teams reviewed disclosures. Everyone understood their roles and liabilities.

Today, technology handles these same processes - introducing LenderTech platforms and algorithmic decisioning into the lending stack. But the liability hasn’t gone away. It’s just (partially) shifted.

The traditional loan lifecycle included:

1. Marketing and intake

2. Application review

3. Human underwriting

4. Disclosure generation

5. Funding and servicing

6. Collections or disputes

Now?

• LenderTech platforms automatically evaluate creditworthiness

• UX-driven disclosures update dynamically

• APIs and integrations handle payments and data

• AI flags fraud or recommends declines

These automated processes still expose companies to lender liability - especially when errors cause consumer harm.

What Creates Lender Liability in a LenderTech World?

Borrowers don’t care whether they’re dealing with a human or software - they care that their rights were violated. Courts and regulators define liability by function, not form.

Ask:

• Did your platform determine loan approval?

• Did you display or generate loan terms?

• Did your product participate in servicing, repayments, or collections?

If yes, your LenderTech platform may be considered a functional lender under law - even if a partner bank funds the loans.

Common Lender Liability triggers include:

• UX errors that misstate interest rates

• Automated denials that disproportionately affect protected groups

• Systemic failure to issue required disclosures

• Misleading advertising or marketing representations

Advertising and the Expanding Front of Enforcement

One of the clearest signals of regulator intent came in January 2025, when the CFPB fined Wise, a global fintech remittance platform, nearly $2.5 million for deceptive marketing practices. Wise had promoted its international transfers as faster and cheaper than competitors, but failed to accurately disclose fees and exchange rates.

The CFPB found that these advertising misrepresentations gave Wise an unfair market advantage - and harmed consumers.

This action wasn’t about backend software failures. It was about messaging, user experience, and the promises made on landing pages, in app flows, and through marketing emails.

Wise was also penalized for failing to properly refund fees when payments were delayed. It’s a stark reminder that marketing risk and operational risk are often inseparable in LenderTech.

If your platform makes promises - about speed, ease, cost, or access - those promises must be accurate. And your insurance must be structured to defend you if a regulator or plaintiff attorney claims they weren’t.

The CFPB and other regulators are now treating marketing and advertising as part of the lending lifecycle. This is especially dangerous for LenderTech companies, who may:

• Advertise approval likelihood based on soft data

• Promote “instant approval” or “zero fees” while burying critical terms

• Use personalized offers that misrepresent eligibility

Misrepresentations in ads, emails, landing pages, or app flows can trigger enforcement even before a loan is issued.

Example 1: A recent CFPB action targeted a digital lending platform for promoting fast access to funds - when delays were common and systemic.

Example 2: Another platform was scrutinized for marketing optional tips and donations as charitable or user-driven, when in fact they were used to support operating costs. Regulators claimed these practices constituted unfair and deceptive marketing, and that the companies misled borrowers regarding true borrowing costs and terms.

If your Tech E&O only covers operational issues, but not the promises made in your product marketing, you may be completely uninsured when these claims arise.

LenderTech Risk Profiles: Who’s Liable for What?

There are two common configurations in the LenderTech ecosystem:

1. Technology Performing Lending Functions

• You control decisioning, disclosures, servicing

• If something goes wrong, you're directly liable

2. Technology Powering Bank-Led Lending

• The bank is the named lender

• But if your tech causes borrower harm, you’ll still get pulled into lawsuits or investigations

In both cases, lender liability is real, but for different reasons.

• In scenario 1, you are the lender in practice

• In scenario 2, you’re the cause of the harm

  
  

Banks rarely build their own software. When something fails, they look to recover from their LenderTech partners.

What Happens When a Claim Hits?

Stage 1: Regulatory Inquiry

• You receive a CID or investigative letter

• Outside counsel is brought in

• Legal spend begins - insurance likely doesn’t respond yet

Stage 2: Public Enforcement or Consent Order

• Penalties, monitoring, and reputational harm

• Your name appears in CFPB enforcement actions

• Private litigators begin circling

Stage 3: Class Action or Third-Party Litigation

• Borrowers file suit

• Partner banks claim breach

• Insurance matters - if you have the right coverage

Most LenderTechs assume Tech E&O will protect them. It often won’t. If the lawsuit involves APR errors, discrimination, misleading advertising, or disclosure failures, it may fall into the Lender Liability Exclusion (or absense of coverage).

The Coverage Intersection: Tech E&O, Lender Liability, and D&O

Tech E&O - Covers software errors, like bugs or outages

Lender Liability - Covers financial harm from lending conduct

D&O - Covers governance-related lawsuits against executives

Most companies in the LenderTech space need all three. Without coordinated coverage, there are gaps where no policy responds.

For example:

• A LenderTech automates disclosure generation. A UX change causes noncompliance with TILA.

• A CFPB investigation turns into a class action.

• Tech E&O says it’s lending conduct.

• Lender Liability says it was a tech failure.

Result? Denied claim. Full exposure.

What URM Does Differently: Legal-Led Risk Architecture

URM isn’t a traditional broker. We:

• Map exposure using regulatory triggers and tech algorithms

• Score litigation risk across company specific risk profiles

• Model class action and regulatory exposure based on real-world CFPB actions

• Benchmark insurance structures used by similar LenderTech platforms

• Build customized Tech E&O + Lender Liability programs that actually respond

We also integrate AI-specific coverage into our models, because we know:

• Machine learning models make credit decisions

• Personalization tools affect disclosures

• AI can trigger discrimination claims without obvious intent

And most insurance policies exclude or ignore AI completely.

Final Thoughts: Insurance for LenderTech and Modern Financial Platforms

As more lending activity migrates to technology, and as regulators increase scrutiny of the LenderTech sector, your coverage must evolve.

Lender Liability and Tech E&O are no longer optional - they’re essential. But more importantly, they must work together.

URM offers deep insight, technical fluency, and underwriting-focused firepower in one partner.

Our solution isn’t a quote gathering, it’s a system of risk management.

About the Author

Steven Barge-Siever is the founder of URM. He’s a licensed attorney (CA, NY), former general counsel, and has led legal and risk teams at leading firms and VC-backed insurtech startups.

He has structured hundreds of insurance programs and helped defend, settle, and prevent litigation at every level - from CFPB actions to complex securities class action disputes.

Steven created Undr AI to turn that expertise into a digestible offering for complex clients - one that evaluates legal exposure, maps coverage gaps, and automates insurance precision for modern risk.

📞 Want to know where your liability lives? Let us show you.

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