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Financial Services Panel Investigates Big Tech’s Role in Lending

Ensuring consumers have the tools necessary to understand how the ever-blurring line between technology companies and banks impacts their services was at core of a virtually hosted congressional hearing on Tuesday, Sept. 29.

US CapitolThe House Committee on Financial Services’ Task Force on Financial Technology hosted the hearing, entitled “License to Bank: Examining the Legal Framework Governing Who Can Lend and Process Payments in the Fintech Age,” and heard testimony from policy experts in the financial, legal and advocacy industries.

The panel focused on the importance to empowering consumers, especially as states continue to grapple with the fallout of the COVID-19 pandemic. “In a time of crisis, everyday American’s ability to receive government loans and benefits, bank in-person, and use of physical currency has shifted dramatically,” reads information from the committee. “As consumer’s adjust to the changes, it is unclear whether most consumers understand the difference in protections and oversight between ‘banks’ and ‘technology companies’ when participating in financial activities, like sending money to a friend.”

Among the panelists offering their expertise for the hearing were:

  • Raúl Carrillo, policy counsel at the Demand Progress Education Fund and a fellow at the Americans for Financial Reform Education Fund;
  • Everett K. Sands, chief executive officer of Lendistry;
  • Arthur E. Wilmarth, Jr., professor emeritus of law at George Washington University Law School; and
  • Brian Knight, director of the Innovation and Governance Program at the Mercatus Center

FROM TWITTER

Raúl Carrillo @RaulACarrillo Sep 28

"I'll be testifying before the House #Fintech Task Force tomorrow @ noon ET (on behalf of @demandprogress EF & @RealBankReform EF). Grateful to @RepMaxineWaters & @FSCDems staff for the opportunity. You can watch live on YouTube! https://financialservices.house.gov/calendar/eventsingle.aspx?EventID=406871"

Carrillo addressed the public interest in his comments and warned new “bank-like” technologies can be useful, but also come with risks to the integrity of consumer protection rules and can bring civil concerns like the right privacy. “ … Many of these innovations only serve to entrench the power of Big Tech and further erode our democracy,” Carrillo said. “I echo previous calls for policymakers to adopt a bright-line, precautionary approach to digital ‘bank-like’ activities. What industry calls ‘innovation’ is often easily mapped to a longstanding financial service and therefore the existing laws should apply.”

FROM TWITTER

Financial Svcs Cmte @FSCDems

"The OCC’s SPNB charter is currently under litigation and the payment charter is based on the same legal underpinnings, thus is subject to challenge on the same grounds. Why on earth would a #fintech want to be the test case for the viability of charter? #AsktheTrumpAdministration"

One area especially melding new and traditional services is online borrowing. According to the committee, banks and fintechs are partnering with increasing frequency in order to help facilitate lending. Estimates provided by the task force indicate close to $41 billion in loans was generated by “marketplace lenders” in 2017, with that number expected to hit $90 billion annually beginning this year. Marketplace lenders use online platforms to “connect borrowers with investors willing to offer loans,” per information from Sharestates.

Earlier this year, a separate hearing was held in order to address potential damages to consumers when companies use these platforms, for example, to shirk state usury cap laws.

“When a loan is originated under such a partnership, the bank originates the loan but using the guidelines of the non-bank lender,” notes the financial services committee. “This loan is then quickly sold to the non-bank lender. The consumer receives the loan from the bank. Under current federal law, national banks and Federal Deposit Insurance Corporation (FDIC)-insured state banks may maintain the maximum interest rates of the states where they are headquartered, meaning they can charge those rates even when lending to borrowers in other states with stricter usury laws.”

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