Financial Services Committee – Examining Fintech

Washington, January 30, 2018 – The Subcommittee on Financial Institutions and Consumer Credit met today to explore opportunities and challenges in the financial technology (“fintech”) marketplace in order to better understand how to properly regulate the industry while simultaneously ensuring that fintech companies and financial institutions remain able to deliver new and innovative products and services to consumers.

“From online lending and payment companies to blockchain and cryptocurrencies, advances in financial technology are changing the way financial markets work and how consumers access credit,” said Subcommittee Chairman Blaine Luetkemeyer (R-MO). “With greater understanding of fintech’s capabilities, the Financial Services Committee and Congress can better create an environment that fosters certainty and responsible innovation while maintaining consumer protections.”

Key Takeaways

  • Modern developments in digital technology are changing the way many financial services are offered and delivered.
  • Congress and the federal prudential regulators must continue to examine this innovative marketplace to understand the opportunities and challenges it presents, and to ensure that financial services entities are allowed to use fintech to deliver new products and services while also protecting consumers.

Topline Quotes from Witnesses

“…[fintech] is effectively serving the broad American ‘middle class’ that remains our engine for economic growth and prosperity. It is also bringing greater democracy to investment in credit – providing investment opportunities once only available to the wealthiest or largest institutional investors in society. MPPs [Marketplace lending platforms] are delivering new, beneficial products to consumers, in locations that many banks no longer can serve; and increasing needed competition in key markets. However, much work still needs to be done for more of the American ‘middle class’ to fully realize and benefit from the potential of MPPs specifically and fintech more broadly.” – Nathaniel Hoopes, Executive Director, Marketplace Lending Association

“Fintech lenders present an opportunity to expand credit access and quality. Although such lenders should be subject to appropriate regulation, the regulation must work with the fundamental economic reality of the market. Ensuring that regulations do not burden fintech lenders more heavily than their bank competitors are burdened and that the validity of their loans is not in doubt are important steps toward helping realize the promises of innovation.” – Brian Knight, Director, Program on Financial Regulation and Senior Research Fellow, Mercatus Center, George Mason University

“We believe financial services are in a period of significant transformation and these changes give policymakers an excellent opportunity to try new approaches that enhance economic participation and improve access. The benefits [of fintech] could be enhanced through a modernized financial regulatory structure that keeps pace with innovation and meets the needs of today’s consumers and commerce. The current structure is needlessly fragmented and inconsistent among federal regulators, and varies widely across state jurisdictions.” – Brian Peters, Executive Director, Financial Innovation Now

“Legislation has been introduced that would reconfirm and reinforce existing federal law with respect to a bank’s identity as the true lender of a loan originated by a bank with the assistance of a third-party service provider. Specifically, H.R. 4439 would resolve any uncertainty about a bank’s ability to use third-party service providers by confirming the principle that when a bank enters into a loan agreement, it is the bank that has made the loan. A bank thus may export its location-state’s interest rate on any loan to which the bank is a party. The proposed legislation also would effectively confirm that the full relationship between the bank and the online lender comes under the close scrutiny of the bank’s federal regulator, including the extensive supervisory regime outlined above. We believe that by reinforcing existing federal banking laws, the proposed legislation would provide much-needed guidance to courts and help preserve the benefits of bank-fintech partnerships for consumers and the economy in general.” – Andrew Smith, Partner, Covington and Burling, LLP

Original Press Release