▶ 0:14:09The subcommittee on digital assets, financial technology, and artificial intelligence will come to order. Without objection, the chair is authorized to declare a recess of the committee at any time. Today's hearing is titled "Delivering for American Consumers: A Review of Fintech Innovations and Regulations." Without objection, all members will have five legislative days within which to submit additional material for the chair for inclusion in the record.
▶ 0:14:34I now recognize recognize myself for 4 minutes for an opening Technology continues to revolutionize our financial system, from payments to newer applications like earned wage access. Digitalization, cryptography, and artificial intelligence give consumers faster, cheaper payment, flexible access to earned income, and new ways to manage everyday purchases.
▶ 0:14:57These innovations have the potential to improve Americans' financial well-being by making their day-to-day finances more practical, predictable, and affordable. Historically, workers were paid when they earned wages. Yet today, many workers in our economy go home without their earnings. Holding an employee's pay until the end of a payroll cycle is a relatively modern practice.
▶ 0:15:24Earned wage access helps restore this link between work and pay by allowing workers the flexibility to access their wages as they earn them. This flexibility can help families deal with unexpected expenses, from medical bills to car repairs, or simply pay recurring bills timely. By by providing timely access to earned income, EWA can help Americans achieve their financial goals and help businesses improve worker satisfaction, retention, and overall productivity.
▶ 0:15:54Importantly, innovations like EWA and buy now, pay later options often coexist and intertwine with traditional financial institutions. Banks and other lenders are vital partners with Fintechs, providing liquidity and credit, as well as access to infrastructure like payment rails. These partnerships provide more efficiency and options for consumers and create new products to enhance competition.
▶ 0:16:22Our financial institutions can also benefit from partnering with Fintech companies by enhancing their offerings and allowing small and community institutions to deploy cutting-edge tools. As we explore the benefits of Fintech innovation, we must make sure that our regulatory framework is fit for purpose. A well-functioning framework for Fintech should focus on risks posed by specific activities, not the identity or business model of the provider.
▶ 0:16:50Fintech products that meet consumer demand and improve Americans' financial lives should have clear, practical legal pathways for operation, and strong consumer protections. By supporting thoughtful and balanced regulation, we can encourage innovation while ensuring consumer protection and promoting financial well-being for American households and businesses alike. Today's hearing will inform these efforts, and I thank our witnesses for their upcoming testimony. I'll now recognize the ranking member of the subcommittee, Mr.
▶ 0:17:20Lynch, for 4 minutes for an opening Thank you very much, Mr. Chairman. I also like to thank our witnesses for your willingness to come forward and help the committee with its work. Uh this hearing continues our committee's work to examine Fintech innovation, including the use of Fintech liquidity project products such as buy now, pay later services and earned wage access.
▶ 0:17:44This is an area of of great promise and and potential to overcome pre-existing barriers and to expand economic opportunity. If we include proper guardrails that assure necessary consumer
▶ 0:18:00protections, this hearing continues our work, and these products present an attractive source of capital liquidity to help people meet short-term needs. However, some consumer advocates and other stakeholders have pointed to multiple consumer protection concerns associated with Fintech business models that incorporate hidden fees, lack meaningful underwriting, and are not subject to adequate oversight.
▶ 0:18:25And they may target vulnerable consumers with deceptive claims about credit With the use of these products surging since the beginning of the COVID-19 pandemic, our committee's work on this issue has become increasingly vital to ensure that the proper oversight and adequate consumer protections are in place.
▶ 0:18:44As ranking member of the subcommittee, I've participated in multiple hearings to examine the proliferation of Fintech-powered earned wage access services that enable employees to receive a cash advance on their paycheck prior to payday, often at an inflated fee or at the cost of a voluntary, so-called tip.
▶ 0:19:03Uh whether offered through an employer or through a direct-to-consumer provider, this on-demand pay market has grown rapidly with employers and providers now advancing billions of dollars in wages to millions of employees annually. As reported by the Harvard Kennedy School in a recent study on the proliferation of earned wage access products, 40% of the people who have access to an earned wage access application through their employer use it at least once a week.
▶ 0:19:30Over 75% of respondents indicated that they were using their money to pay for regular bills rather than emergency expenses, with one typical user noting, quote, "It just turned into a cycle of always taking money out," close quote. Moreover, the rush fees, tipping options, and other hidden charges associated with certain business models, not all, collectively amounted to an estimated annual percentage rate of more than 300% in some cases.
▶ 0:19:57Similarly, a growing number of consumers are now relying on buy now pay later services to make ends meet. With Federal Reserve data indicating that nearly 100 million Americans use buy now pay later, uh at least in in 2025, uh these services, which allow consumers to pay for purchases over multiple partial payments, are now widely available at checkout both online and in person where a customer can opt into it and services and receive approval in minutes without a hard
▶ 0:20:27credit check. Despite purporting to offer free services, some buy now pay later loans, especially longer-term loans, can ultimately be more costly than using a traditional credit card. The Federal Reserve reports that nearly 1/4 of buy now pay later users did not make payments on time and face later fees.
▶ 0:20:45Considering the proliferation of buy now pay later, earned wage access, and other fintech liquidity products, the consumer protection and enforcement mission of the Consumer Financial Protection Bureau is more important than ever. Unfortunately, President Trump does not agree.
▶ 0:21:01The Trump administration has undertaken unprecedented and unlawful efforts to dismantle the very agency that should be protecting consumers against fraud and exploitation in this very area, including the issuance of cease work orders that halted virtually all CFPB enforcement supervision and enforcement functions, the abandonment of dozens of pending enforcement cases, and the attempted termination of about 90% of CFPB agency staff. I urge my colleagues to defend the CFPB in the face of these attacks.
▶ 0:21:31It will help with the innovation that we all desire to see in this way space. Thank you, Mr. Chairman, and I yield back the balance of my time. The gentleman yields back. I now recognize the chairman of the full committee, Mr. Hill, for 1 minute for an opening statement. Uh thank you, Chairman Steil, for your great leadership of our subcommittee.
▶ 0:21:50This hearing is really deeply personal uh for For the past four decades, as a former community banker and investor, I've seen how technology has expanded across banking, sharpened competition, and broadened choices for consumers in financial products. Earlier, as a payment system innovator, I witnessed banks' strong demand for modern tools and how meeting that demand delivered real benefits for our customers across the board.
▶ 0:22:16This committee has long championed innovation and responsible partnership between traditional financial institutions and technology That commitment is now more important than ever. We should encourage regulators to foster those partnerships, unlock innovation, and reduce unnecessary regulatory burdens. I look forward to the discussion today on how we can work together to promote innovation, strengthen competition, and expand consumer choice. I thank you, Mr. Chairman, and I yield back.
▶ 0:22:45The gentleman yields back. Uh today we welcome the testimony of Jodie Kelly, chief financial officer of the Electronic Transactions Association, Mr. Kevin Lefton, uh global general counsel at Stream, Mr.
▶ 0:23:00Ram Palaniappan, founder and chief executive of Earned It, Todd Zywicki, law professor George Mason University uh at the Antonin Scalia School of Law, and Delicia Reynolds Hand, senior director of Digital Marketplace at Consumer Reports. We thank each of you for taking the time to be here. Each of you will be recognized for 5 minutes to give an oral presentation of your testimony. Without objection, your written statements will be made part of the record. Ms.
▶ 0:23:29Kelly, you're now recognized for 5 minutes for your oral remarks. Thank you. Chairman Hill, Chairman Steil, Ranking Member Lynch, and members of the subcommittee, thank you for the opportunity to testify today.
▶ 0:23:43My name is Jodie Kelly, and I am the chief executive officer of the Electronic Transactions Association, or ETA, a leading trade association representing the global payments Our members, from banks and networks to fintech innovators, process more than $57 trillion in transactions annually and power commerce for millions of American consumers and businesses. Today, I'd like to make three points.
▶ 0:24:09First, digital payments are essential national infrastructure, delivering enormous value to consumers and small Second, this innovation already operates within a robust regulatory framework. Third, targeted federal leadership, especially on fraud and artificial intelligence, can strengthen that framework without slowing innovation.
▶ 0:24:35Payments have evolved from cash and checks into a secure digital ecosystem that underpins daily economic life. Payments are how Americans get paid, pay bills, run businesses, and manage Digital payments enhance affordability by expanding consumers' effective spending power. Credit cards, buy now pay later options, and cash back rewards help families manage unexpected expenses and smooth cash flow.
▶ 0:25:04In 2024 alone, consumers received more than $43 billion in cash back rewards. Those are real dollars returned to real household For small businesses, digital payments are now table stakes. Entrepreneurs can start businesses with a smartphone and accept payments instantly.
▶ 0:25:26Embedded payments, integrated directly into business software, allow small firms to manage sales, payroll, taxes, and compliance all in one place. Businesses that accept digital payments see sales increase by 8 to 10%.
▶ 0:25:43And the efficiency gains are In 2024, faster checkout and back office automation saved small businesses an estimated 806 million labor hours and generated $34 in incremental sales. At the national level, the payments ecosystem contributes more than $350 annually to GDP and directly supports approximately 2 million US jobs, high-quality, good-paying jobs across every state.
▶ 0:26:14The industry continues to evolve through mobile wallets, peer-to-peer payments, embedded finance, and AI-driven fraud Artificial intelligence is now central to payment security. AI systems detect sophisticated fraud in real time, often before consumers are harmed, while reducing false declines and improving customer experience.
▶ 0:26:37Looking ahead at agentic commerce, where AI agents transact on behalf of consumers and business, offers real But trust, authorization, and accountability must remain foundational. Now, this payments innovation does not occur in a regulatory vacuum. Payments providers operate under a comprehensive framework of federal and state laws covering consumer protection, anti-money laundering, sanctions, privacy, cybersecurity, operational resilience, and licensing.
▶ 0:27:08In addition, the industry has developed strong self-regulatory standards, including PCI DSS, EMV specifications, and network level rules. This activity-based approach has protected consumers while allowing innovation to flourish. While new legislation is largely unnecessary, two areas do stand out for federal leadership. The first is fraud and scams. Fraudsters increasingly increasingly rely on social engineering and AI-driven deception.
▶ 0:27:38The payments industry invests billions of dollars annually to combat fraud. But payments are often the final step in scams that begin elsewhere, on social media, through text messages, or over the phone. ETA supports enhanced cross-sector collaboration and legislation like the bipartisan TRAPSAcT to discr- to disrupt scams at their source. The second area is artificial intelligence. AI in payments is already governed by federal consumer protection and safety and soundness rules.
▶ 0:28:09However, a growing patchwork of state AI laws threatens to fragment national payment ETA urges Congress to establish a uniform, risk-based, technology-neutral AI framework that builds on existing The digital payments industry delivers extraordinary benefits to American consumers, small businesses, and the broader economy.
▶ 0:28:31We look forward to working with Congress to help ensure payments innovation continues to deliv- deliver secure, affordable, and innovative financial services. Thank you, and I look forward to your questions. The gentlewoman yields back. Mr. Lefton is recognized for 5 minutes. Thank you. Chairman Steil, Ranking Member Lynch, and distinguished members of the thank you for your time today and for the invitation to speak about earned wage access and its importance to consumers everywhere.
▶ 0:28:59My name is Kevin Lefton, and I'm the global general counsel of Stream. In this capacity, I oversee the legal and regulatory functions for our Stream is an employer-integrated earned wage access provider, operating across the United States, United Kingdom, EU, and Canada.
▶ 0:29:15In addition to EWA, we provide a comprehensive suite of financial well-being resources, designed to enhance the financial health of our Stream, alongside many of our industry peers, remains a staunch advocate for thoughtful regulation that prioritizes consumer protection. We stand as an important non-credit alternative to the high-cost products that trap consumers in a cycle of debt.
▶ 0:29:41It is a fundamental premise of my testimony today that EWA services do not constitute credit, are not loans, and should not be regulated as such. EWA is a critical tool for frontline and hourly workers in all industries, including healthcare, hospitality, manufacturing, education, and many others.
▶ 0:30:00By allowing employees to access wages they have already earned, but have not yet been paid due to traditional biweekly or monthly payroll cycles, EWA provides a low to no-cost alternative to the high interest rates and high-cost fees of other financial We cannot talk about EWA without talking about the essential consumer-focused benefits and consumer protections of Benefits and protections that are absent in credit and other high-cost products.
▶ 0:30:32EWA lacks all the hallmarks of traditional credit and loan products. Specifically, with Stream, there's always a free option to use our service. And the nominal fee for instant access, should a consumer choose to use that feature, is typically lower than a standard ATM withdrawal fee. There is no interest. There is no underwriting. We do not pull credit reports or base access to EWA services on creditworthiness. There's no debt collection.
▶ 0:30:59We do not report to the credit bureaus or engage in collection activity of any kind. The service is truly non-recourse, and no debt is ever incurred. If there's ever an issue, Stream does not go after the consumer. We do not sue them, and we do not report them to debt The arguments that are often presented against earned wage access are flawed because they conflate a non-recourse financial wellness tool with a high-cost lending product.
▶ 0:31:27Labeling EWA as credit ignores the basic reality that workers are simply accessing capital they've already earned. Applying a traditional credit framework like an interest rate to a non-credit product is misleading and ultimately harmful to the millions of hard-working Americans who simply want the option of having access to their own wages so they can manage their own money when they see fit.
▶ 0:31:51Applying a traditional credit framework like an APR to a flat nominal transparent fee is also misleading and creates a false protection that would effectively ban a low-cost or free service. These arguments do not protect consumers. They limit consumer options and force them back towards the very high interest and high-cost fees that EWA was designed to eliminate. A lot has been written about EWA, and there's a lot of misleading information out there.
▶ 0:32:22But here are the key takeaways I would like to leave you with about EWA. EWA is either free or has a nominal fee. There is no interest. There is no debt collection. There is no underwriting. EWA is a non-recourse service.
▶ 0:32:36And most there is nothing wrong with allowing American consumers to decide how and when they can access their money through a product and service they want and EWA represents a shift towards a more equitable financial system for hourly and frontline workers, allowing them to better plan for the future and manage life's emergencies with dignity.
▶ 0:32:59We urge this committee to support a framework that recognizes EWA as a critical non-debt solution for the American worker. Thank you for your time, and I look forward to your questions. Thank you, Mr. Palaniappan. You're now recognized for 5 minutes. You may want to check your microphone. Um better now?
▶ 0:33:22Um thank you, Chairman Steil, Ranking Member Lynch, and members of the Thank you for the opportunity to testify My name is Ram Palaniappan. I'm the founder and CEO of Earnin. And I'm honored to return and contribute to the discussion on how financial innovation can improve the lives of American consumers. Paying bills and managing expenses is top of mind for people every day. Innovation helps with that by making pay more timely and efficient.
▶ 0:33:49Innovations last only if they actually make people's lives better, and earned wage access is an example of such an innovation. Its use is growing because of the real impact that it has on people's lives. Earnin started as an earned wage access and now also offers a modern payroll platform that's used by over 10,000 companies, along with consumer tools that make the way people experience their pay better. Today, about 1% of the people in the US who get a paycheck use Earnin to access all or part of their pay.
▶ 0:34:20The idea for Earnin started when I was working at another company. I heard that some of my employees were struggling between paychecks. That surprised me because they were paid well. I spoke with one of them. She said she needed money the next day, couldn't wait till the following Friday, um which was payday. She'd already worked the hours. She had earned the money, but payday was still days away. The issue wasn't how much she earned, it was when she got her pay.
▶ 0:34:48I couldn't get the payroll system to pay her for the hours that she had already um so I gave her the money that she had already earned, and we settled it when payroll ran. I continued helping many other of my employees the same way, just as happens with many other small What began as a one-time solution has become a reliable way for people to pay their bills on time and avoid expensive Earnin started with the simple idea that people should have access to the money that they have already earned when they want it, not when payroll decides.
▶ 0:35:19Today, most employees are paid But these digital dollars move more slowly than any other digital product. You work every day, and then you're paid once in 2 weeks or maybe once a month. just imagine if other digital products worked the same way.
▶ 0:35:35If your phone said type your text messages every day, and it would send it out every 2 weeks, you wouldn't use But that's how payroll still works The biweekly or monthly pay cycle is a relic of an outdated era that's holding back the benefits of efficiency and today's technology from the people who need it the most. By shortening the work-to-pay gap, Earnin helps people manage everyday expenses like groceries, rent, utility, and transportation.
▶ 0:36:04We're proud to do this in a way that puts the worker first without mandatory fees, interest, or credit checks. Multiple independent research studies have confirmed that workers are better off when they have access to their pay when they need it. A study by researchers at the University of Oregon on over a million Earnin customers found a sustained monthly increase of 11.5% in incomes. That's about $335 on average. Users work more shifts, miss work less, and manage their finances better.
▶ 0:36:35Another study from UCLA on a data set from a different provider found similar results. Incomes went up over 10%. Liquidity acts as upward mobility with reduced overdrafts and no debt Behind the data are millions of real One customer, a government employee, has a side business making custom Used to wait till payday once he received an order to buy his supplies. Now he uses Earnin, and as soon as he receives an order, he buys his supplies.
▶ 0:37:05That's let him do more orders a month and increased his income. Another Earnin customer, Ray, Southern California mother and retail supervisor who's undergoing cancer treatment, shared that on some days she feels better than others. Payday doesn't always align with when she's feeling better.
▶ 0:37:23But Earnin gives her the flexibility and peace of mind, allowing her to take her daughter out on good days without being restricted by paycheck Earned wage access can be delivered in different ways, including through employer-integrated programs or directly to workers. The direct-to-consumer model means employees can access the benefits wherever they work. Today, Earnin serves over 2 million customers, including many in public service, healthcare, education, and small businesses across the country.
▶ 0:37:52Notably, about 1% of house staffers use I appreciate Chair Steil and Representative Torres for their bipartisan leadership to establish a [clears throat] clear federal framework for earned wage and I look forward to continued collaboration in expanding access to these innovations to workers anywhere. I'm happy to answer questions. Thank Thank you very much, Mr. Zawicki. You're now recognized for 5 minutes. Thank you, Chairmans Hill, Chairman Steil, Ranking Member Lynch, and members of the subcommittee. I am Todd Zawicki.
▶ 0:38:23I am the George Mason University Foundation Professor of Law at Antonin Scalia Law School, the former chair of the CFPB Task Force on Federal Consumer Law, and co-founder and co-director of the Institute for Consumer Financial Choice at the Scalia Law School. The modern American finance system, consumer finance system, is really a miracle if you think about it. You can walk into You can walk into a car dealership today and walk out an hour later with a car.
▶ 0:38:51Um I mean, just think about how transformative that has been for the world. Uh as Ms. Kelly mentioned, we can make payments anywhere in the world, 24 hours a day, um day, night, online, in person, um uh anywhere in the world.
▶ 0:39:08Um as uh Congressman Lynch mentioned in his opening statement, I think very uh notably, uh just think about the way in which um access to innovation and financial services helped us to deal with the disruptions of the COVID pandemic, um in the ability of people to bank online, pay online, do all these sorts of things, as well as the alternative underwriting models that were developed for data when people weren't getting paid uh uh in the like. And above all, it's really democratized access to financial services.
▶ 0:39:37Uh innovation more than anything has been a vehicle for including people who traditionally have been under included by the traditional finance system. Um, and how did this happen? Choice, competition, innovation um, is basically what's happened. New entry, often obstructed, often blocked by old incumbents, but new innovative technologies.
▶ 0:40:01Thinking back to the development of the FICO score and the introduction of computers which reduced discrimination, which opened competition. Uh, think about even the telephone uh, and the way in which telephones allowed credit cards to be marketed across uh, state law. Think about payments. Just think about the way in which technology enabled us to go from knuckle busters uh, on credit card processing to always on instant verification at a at a checkout.
▶ 0:40:31And most recently of course the development of the internet. Um, some of these innovations were really just developments of a better way of delivering a product, uh, an older product such as BNPL which replaces old installment loans or or EWA as we've heard about which helps consumers or employees get money from their from their employers. Sometimes they're totally new such as alternative data and underwriting systems and some of the payment systems we see today.
▶ 0:41:02But one thing regardless of what they are, one thing they have in common is they must have a regulatory regime that supports innovation and it does not block it. Um, an obvious point is that the regulation must reflect the technology. As we said, um, whether it's um, uh, the Supreme Court's decision, the Marquette decision that allowed credit cards to be marketed across state lines more effectively, whether it was debt collection rules that dealt with the telephone and the fact that you could then make phone calls across state lines.
▶ 0:41:32But second, it's always also requires the right jurisdiction to deal with things. We went from a period of local credit to a period of national credit driven by department stores and and the like to what we have today which is nowhere and everywhere via the the internet. We have to have the right jurisdictional bodies acting on a lot of these things.
▶ 0:41:56And so we saw in the '60s and '70s as the consumer finance system became more national, we saw more national laws dealing with the ECOA, dealing with debt in the like. The products that are the focus of today's hearing are a good example. These are products that are offered on the internet. They don't bear any relationship to local jurisdictional and the like.
▶ 0:42:20And so it thinking about sophisticated and appropriate places for the federal government to regulate and to even when necessary preempt state laws I think that are that are I'm very pleased with a lot of the innovations in reforms in the regulatory framework of the past few years, whether it was the recent decision by the OCC to recognize national trust banks for for fintech firms, whether it was the CFPB's actions
▶ 0:42:50with respect to some of the regulations that they did, the decision of the CFPB to to keep the 1033 rule and reframe it in a way that is more is more um, uh, useful. But I think there's a lot more that could be done and I think a lot of the legislation that is the subject of this hearing moves in the right direction in terms of opening up competition, national markets in a more resilient and more responsive technologically based In conclusion,
▶ 0:43:21history teaches that we that consumers do best when we recognize their ability to plan their own finances and give them choice, competition and the ability to plan plan their own lives and not substitute the judgment of bureaucrats for American families. Thank you. Thank you very much Ms. Reynolds Hand, you're now recognized for 5 Thank you. Chairman Hill, Chairman Style, Ranking Member Lynch and distinguished members of the subcommittee.
▶ 0:43:49Thank you for the opportunity to testify today. My name is Delicia Reynolds Hand and I'm the senior director of the digital marketplace at Consumer Reports. There I lead our work ensuring digital financial products work for consumers not against them. Before Consumer Reports, I spent nearly a decade at the CFPB. This hearing asks an important question. Is fintech delivering for American consumers?
▶ 0:44:17And I'd like to make three First is affordability. Affordability is key for consumers. Americans are stretched thin. Groceries and rent cost more and credit card rates are near historic highs. In this environment, consumers will turn to products like buy now pay later and earned wage access to manage cash flow. This in itself is not a problem.
▶ 0:44:42The problem is when they can't easily see what they're paying, they can't compare options and debt stacks invisibly across The CFPB's own recent data point on buy now pay later shows that BNPL usage continues to grow. Consumers are now taking an average of six loans per year from a single provider up 11% and that's just one lender. Many consumers use multiple providers creating obligations that don't appear on traditional credit reports.
▶ 0:45:12Simple guardrails such as cost disclosure lets people compare options. And other guardrails against debt stacking allow consumers to avoid invisible overextension. These aren't anti-innovation. They're requirements for a market that works. On earned wage access, we're glad to see the draft legislation before you contains real protections like a no cost option, disclosure rules, prohibition on late fees.
▶ 0:45:42However, we're concerned that the bill also categorically excludes EWA from credit law and preempts state authority. Under the Truth in Lending Act, credit's defined as the right to defer payment of debt or incurred debt and defer its payment. If it works like credit, we should regulate regulate it like credit. And by that measure, EWA is credit.
▶ 0:46:06Secondly, consumers need accountability especially for new innovation like AI. AI is no longer emerging in services, it's embedded. It's approving loans, freezing accounts, flagging fraud, as mentioned, determining who gets access to products at what price. These systems operate at machine speed and if something goes wrong, accountability moves slowly if it moves at all.
▶ 0:46:34Consumer Reports recently surveyed over 4,000 Americans on AI in financial services. Three quarters are concerned that AI could lead to unfair treatment. When consumers encounter AI, many also report negative experiences. 57% don't believe current laws adequately protect them. Consumers should have the ability to opt out, independent audits, a simple way to appeal and public reporting on accuracy and bias testing.
▶ 0:47:03In other words, transparency, accountability and human The subcommittee is considering the Financial Services Innovation Act which would create sandboxes allowing companies to seek waivers from existing consumer protection rules, not just for AI, but for any financial innovation. And that just gets the burden wrong. Consumer harm during a test period is still harm. And the consumer whose account is frozen or wrongfully denied credit doesn't care whether it happened in a sandbox.
▶ 0:47:33Last, enforcement. I spent nearly a decade at the CFPB. I've seen what happens when we have an agency that's active and mandating and holding its mandate to hold institutions And we're seeing what's happening when that capacity is dismantled. The CFPB has lost a majority of its enforcement capacity, staff have been let go, examinations have stopped.
▶ 0:47:56The agency Congress created to be the cop on the beat is being hollowed out and at the same time this subcommittee is considering important legislation that would expand fintech activity and wave existing protections. That is a practical problem, not a Who will supervise compliance with the EWA bill's disclosure requirements if no one's there to to do it? Who investigates when AI systems malfunction at scale?
▶ 0:48:25The bills before you assume a functioning regulator from a consumer protection standpoint and assumption no longer holds. So the question today isn't whether fintech innovation should continue, it absolutely should. But the question is whether consumer protection scale alongside with it or whether consumers remain the shock absorbers for risk. We're ready to work with the subcommittee. We've tested the products, surveyed consumers and I appreciate the opportunity to be here. I welcome your questions.
▶ 0:48:55Thank you. Thank you very much. The gentlewoman yields back. We'll turn now to member questions. I'll recognize myself for 5 minutes for questions. Mr. Pan and open, we're at a transformational stage here. EWA gives individuals access to the wages they earned. If you and I 100 years ago were hired to carry sacks of at Ms.
▶ 0:49:19Kelly's farm, we worked our tails off all day long, we would expect to have been paid at the end of our day's Large ERP systems came in, made it very difficult to pay people every day. Now many people get paid every 2 weeks, some people every month. Makes it hard to meet the bills.
▶ 0:49:39And so one of the questions becomes, how do we regulate this new space under earned wage access where individuals are receiving access to the wages that they've already earned attached to this hearing is my discussion draft the Earned Wage Access Consumer Protections Act where we start to dig into this making sure that there's a no cost option, full disclosures for individuals taking advantage of EWA products. And so one of the questions is is this credit?
▶ 0:50:08Do we need a new regulatory framework? We just heard Ms. Reynolds suggest that this is credit and should be regulated like credit. But if we were carrying sacks of potatoes at Ms. Kelly's farm, we'd expect to get that money at the end of the day and it sure doesn't sound like credit. It sounds like I'm getting access to the money that I earned. So I come to you Mr. Palani Appan.
▶ 0:50:30Can you walk me through the distinctions that you see between EWA products and credit under the Truth in Lending Act and Reg Z? Um, sure. Um, so like you said, what earned wage access does is it changes the timing of when somebody receives their pay, which is different than a credit product where you're giving somebody money.
▶ 0:50:54and I think calling it what it is not, calling it credit actually confuses the customer because with the credit product they expect interest to accrue, they expect there to be a repayment date, they expect that there will be penalties if it doesn't get paid, they expect that there will be collections, they expect that it's going to affect the credit report. None of those happen with earned wage access and so calling it credit actually will confuse the customer. In terms of the legal aspects of credit, I think Kevin who's an attorney might actually be better positioned to talk about how it's different um, to credit. Sure, thank you.
▶ 0:51:22I think that's an important question and probably one of the most important questions of today. Um, TILA and Reg Z apply to consumer credit that's subject to a finance charge. And EWA is not consumer credit and I'll explain and a flat fee is not a finance charge. The CFPB recently stated in its December 23 advisory opinion that EWA is not credit because no debt is incurred. You must have a debt to have credit and a debt is an obligation to repay.
▶ 0:51:49Should we think of that as a distinction between employer sponsored EWA and direct to consumer EWA? No. That's part of the conversation that we're hearing. No, I think that's a great question but no debt is no debt. And so if there's no obligation to repay on the direct to consumer and there's no obligation to repay on the employer integrated, I think it's the same. I think the fundamental question is, is there an obligation to repay? And the answer is no for EWA because it's a non-recourse product.
▶ 0:52:14So Mr. Zwicky, I'm going to come to you and kind of continue to pull on this same string. One of the challenges that we face are these new and innovative products aren't always fitting neatly into the regulatory framework that was really hasn't been updated since the 1970s. And so this is new technology that wasn't around and available now over 50 years ago. And so what are some of the the principles that you think we should be looking at to strike the right balance in this innovative space?
▶ 0:52:45Exactly right. I think that frames it correctly which is obviously it needs to be as I said in my remarks, responsive to the current It needs to be responsive to the right jurisdictional boundaries. Our laws are really set up in a paper-based world back in the 1970s. And finally, I think we really need to tailor to who consumers are, where they and how they get information. Nowadays, people do things on the phone, not with great big stacks of paper.
▶ 0:53:14And so in terms of getting the right disclosures at the right times so the consumers can understand them on these products. I think those are the principles we should look like, take a a consumer focused approach to how they get information.
▶ 0:53:28And should it be risk focused? Should it be activity focused or should it be how the the business purports the business model itself? What's the best way for us to be thinking that through? I think the best way to think about it is how do we empower consumers to find the products that they want as easily as possible. One of the things about EWA and BNPL is they're pretty simple products usually and consumers can generally understand them.
▶ 0:53:54But I would say what we want to think about is how do consumers take in the information, how do they use the products and focus on from the consumer perspective. Thank you very much. I think we got some really innovative space here and I appreciate your testimony. I yield back. I'll now recognize the ranking member, the gentleman from Massachusetts, Mr. Lynch for 5 minutes. Thank you very much, Mr. Chairman.
▶ 0:54:16First of all, I want to recognize that a couple of my dear dear colleagues and friends in the audience, Congressman Lacy Clay from Missouri and Congressman Ed Perlmutter from Colorado, two outstanding members of Congress when they were here and they are missed. And good to see that they're gainfully employed. I'm just turning to the issue of earned wage access.
▶ 0:54:46So before coming to Congress, I was an ironworker for about 20 years. I worked in the construction industry mostly building high-rise office towers, that type of thing. But the way it worked in the construction industry is we would work Monday through and then the following Wednesday we would get a paycheck. So by the time payday rolled around at the end of the day on the following Wednesday, we had loaned the 8 days of labor.
▶ 0:55:15So it we floated the basically providing credit to our employer. And uh, life doesn't work that way. Didn't work that way back then and it doesn't work that way today. Uh, back then you had to ask for what they called a drag. A drag was an advance on the money that your money. Much So it's the similar model here but it was much less fair and transparent back back in the day. So there's definitely the need for this, right?
▶ 0:55:44We need innovation as as uh, several of our witnesses have pointed out, Mr. Zwicky, and and others have said, you know, we we can expand opportunity, we can bank access uh, if we do this properly. But I do want to just acknowledge what Ms.
▶ 0:56:10Reynolds Hands has pointed out that if we don't do this properly, we we allow this innovation to come in in a way that we actually encourage or or or let me put it this way, we we unfairly require companies that are doing the right thing to compete with bad actors.
▶ 0:56:33If there's no regulation, uh, you know, we we just know human nature and and we may put people in a in a bad especially because of the demographics. Ms.
▶ 0:56:46Reynolds, uh, you know, the recent bipartisan working group that we had here on artificial intelligence that I co-chaired with Chairman Hill specifically examined the impact of AI algorithms that target certain customers based on certain characteristics including protected And given the importance of consumer data feeding AI, there is a concern that that some of these companies may use algorithms
▶ 0:57:17in BNPL, you know, buy [clears throat] now pay later and earned wage access products that feed off consumer data sets that that violate their privacy and may be impermissible for other reasons. Can you talk about how how Do we have any transparency or any visibility on how these firms are using those data sets? How they're acquiring Sure, absolutely.
▶ 0:57:44Over the last several years, Consumer Reports has evaluated, we've reviewed policies and actually dug into the fintech apps, various kinds, buy now pay later, P2P apps, digital um, crypto, um, wallets for example, to examine how consumers use them, what they do. Um, and to your point, all across the board, even basic banking apps, more data is collected than is needed.
▶ 0:58:15That data is then passed on and sold and used, consumers are up-marketed. It also allows custom the the companies to strategically um, understand what consumers are willing to pay and what they're not willing to pay. And prices can be set using this data that they gather from consumers. We do see multiple use.
▶ 0:58:44Consumers don't have control over their data. These apps are typically set to a that's obscured, hard to find. And so it it can have a a disparate impact on communities of color, poor communities and and other consumers. Okay, thank you.
▶ 0:59:06My time is going to expire but I would just ask you if you might be able to share with the in writing ways that we might mitigate the potential bias used against certain populations especially the 40% of BNPL users who are black or Hispanic as identified by the Federal Reserve Bank of Philadelphia. Thank you. I yield back.
▶ 0:59:30The gentleman yields back. The vice chair of the full committee, the gentleman from Michigan, Mr. Huizenga is recognized. Mr. Chairman, I find myself in an odd position agreeing with Mr. Lynch on a couple of things. One, acknowledging our colleagues, Mr. Lacy Clay, Mr. Perlmutter. I'm not sure I would have used outstanding, but they they're very good friends and great colleagues to have worked with across the aisle, both of them, and I do appreciate that. And and it's interesting his Mr.
▶ 0:59:58Lynch's work as as an ironworker, my family the the small company that I own is in construction as well. It's seasonal. And I can tell you we go through that that payroll process every week. And we've chosen as as employers to pay every week because I don't want to disadvantage my guys.
▶ 1:00:20But I I can tell you I'm I'm I'm speculating here a little bit, but I'm pretty sure that Henry, Cole, Larry, and a couple of other guys would be really excited about being able to have access to their cash daily after they put in a 10-hour 11-hour work day in a gravel pit. And and frankly they deserve it.
▶ 1:00:39Now that the the the realities are is by the time they finish up at 5:30, 6:00 on a Friday, we got to go get the hours, figure that out, get that into the our payroll processor, and by the time that the checks are cut, we still are old school. They can choose to whether they want to have direct deposit or not, but we we are still send checks in the mail to some of these guys. And and sign the check and they finally get it on Thursday. Amen. Hallelujah.
▶ 1:01:09Let's actually pay for people's work in a timely as manner as we possibly can. So I I'm going to I'm going to start with Ms. Kelly here. I want to touch on the transmitter licensing, which I know you mentioned in your testimony. Currently there exist a patchwork of state licensing regimes. And so this is kind of a quick two-part question here. First, what difficulties do you do startups face when trying to develop or scale a new payment system?
▶ 1:01:38And second, what is the cost and complexity of complying with varying jurisdictional
▶ 1:01:43Yeah, Congressman, thank you for that question. It's an important one. When you think about startups, fintech startups, and what it takes for them to get in market and operate, uniformity is so important. And the example you provide is one where there is incredible disuniformity. You know, you have a small startup trying to get into business in 49 different jurisdictions with 49 different licensing requirements. We know that's expensive.
▶ 1:02:08We know it costs literally millions of dollars, and we know it takes a long time, as much as 2 years. And that's a death knell for a small business trying to get up and running. And then of course if they do manage to get up and running, there's 49 different compliance regimes they have to apply with.
▶ 1:02:23Well, that's okay. We'll just have the Huizenga gravel company compliance department take care of that. Oh, wait a minute, that's me. Well, that's exactly right. You know, small businesses have to focus on their business. They don't have an army of compliance professionals and others who can help us navigate that patchwork. So it's an excellent example of a real world problem that that startups and fintech It's better than scaring Mr. Style and me carrying your sack of potatoes on the metaphorical farm, but All right, Mr.
▶ 1:02:51Zwicky, good to see you again as What role do non-bank firms play in partnering with fintechs, and how do these relationships help drive innovation that might not otherwise occur within traditional banking system? We're seeing this all the time, right? I mean, you certainly did at CFPB. Yeah, thank you for that. It's really remarkable. do some things pretty well, but banks don't always do innovation that well, especially smaller banks.
▶ 1:03:20Their their regulators tend not to like
▶ 1:03:22Their regulators often aren't friends of innovation. But especially small banks. And I think one of the things we're seeing is a lot of fintechs are partnering with small banks, which I think are is strengthening the dual banking system. A lot of these are state banks, smaller banks. And so what I think we're seeing is especially in a regulatory environment where for various reasons including regulation, we're getting more and more consolidation and concentration in the banking system.
▶ 1:03:49I think the way in which fintechs are strengthening the ability of small banks to compete with big banks, they're more often more nimble, they're more responsive, and and that sort of thing. That's really been an engineer. Big banks innovate as well, but I think the ability of fintechs to partner with small banks has been a huge part of this story.
▶ 1:04:09Okay, I've got 30 seconds left, and and and sorry, with a name like Huizenga, I'm not trying to be disrespectful when I mispronounce Poloniewicz, right? Close-ish. Let me move to you on remaining time. What elements of your current financial financial institution regulatory framework may be inappropriate for startups, and I may have to take that in a written form, but maybe briefly if Why don't we ask the gentleman to to provide that in written form cognizant of the time?
▶ 1:04:39I yield back. Thank you. Thank you. The the gentleman yields back. I'll now recognize the gentlewoman from California, the the ranking member of the full committee, Ms. Waters, for 5 minutes. Thank you very much. President Trump promised to reduce the cost of living. Instead, unemployment and grocery prices are rising, and consumer protections are eroding.
▶ 1:05:02Under the Trump economy, people are being forced to use products like earned wage access to get early access to their paychecks and buy now, pay later loans to buy groceries. Trump called this affordability crisis a hoax. But he knows it's real and now wants to credit card interest rates at 10%. Well, President Trump, I'm pleased to know that you are listening.
▶ 1:05:32We don't agree on much of anything, but we do on this. So let's do it. Let's cap interest rates. But Mr. President, you're going to need to convince your Republican colleagues because they won't consider this or any other bill that would help keep money in consumers' pockets. And so not only am I interested in what the President has proposed, this interest rate of 10% on credit cards. Mr.
▶ 1:06:00Style, do you believe this cap requires authorization by Congress? If yes, I didn't hear you. Would the gentlewoman
▶ 1:06:11I yield. Would the the gentlewoman like to yield?
▶ 1:06:13Do you believe the cap requires authorization by Congress to get the 10% cap that the President is advocating? I'd be more than happy to have a broader dialogue as to exactly how we navigate it anytime, ranking member. Well, I want to know whether or not the committee has plans to move forward with this policy. Maybe some of our witnesses here to know know a little bit more about it. Ms. Reynolds Reynolds, are you supportive of 10% credit card rate cap?
▶ 1:06:44We're supportive of um anything that lowers the cost of goods and services to consumers. As you loads of things including the cost of financial services are high for consumers right now. I think an important consideration is how that happens, and if that happens through a transparent process where we're able to come to the table and land on a workable solution, that's great.
▶ 1:07:11I think one thing I'd like to note is about how credit card rates are set. They're based on risk pricing, right? Um lending happens that way, and so we would be concerned that this 10% cap, if not done correctly, could actually move consumers could could reduce accessibility of um credit cards for some of the more vulnerable consumers.
▶ 1:07:37And so we would we'd support the basic principle and are looking forward to seeing more details and working in a bipartisan way. I'm sorry I said Ms. Reynolds, it is Ms.
▶ 1:07:54Fintech products like buy now, pay later, and earned wage access, do you believe that they can help families struggling to make ends meet, especially during this crisis that we're confronted with? Yeah, they can. We have no objection to those products. What we've seen is with the introduction of innovation, more consumers have access to liquidity.
▶ 1:08:22That's an important foundation of American commercial life, and we want healthy credit that's available to But there should be some basic standards that are introduced with and guardrails that are introduced with these products. Specifically, we want to ensure that there's an affordability standard.
▶ 1:08:46We got into the last financial crisis, the mortgage crisis, because there wasn't real test of consumers' ability to That deserves consideration with these kinds of products, especially when you significant business model. You have employer-sponsored EWA. You also have direct to consumer EWA, which is sponsored differently, and in some instances can be riskier to consumers.
▶ 1:09:14We also want to ensure that all products that look like credit and act like credit are treated in the same way. If a product if a consumer incurs a debt, and that debt needs to be repaid later in time for a specific fee, or interest is attached, I I don't know um what else you would call that other than credit, and that's what is defined under the Truth in Lending Act. Um so, we want that consistency.
▶ 1:09:44Thank you very much. I yield back. The gentlewoman yields back. The gentleman from Ohio, Mr. Davidson, who's also the chair of the National Security, Illicit Finance, and International Financial Institution Subcommittees is recognized for 5 minutes. Uh thank you, Chairman. Thank you to all of our witnesses for joining us today and for your testimony. Um one of the great strengths of America's financial system is the capacity for innovation.
▶ 1:10:06Fintech companies, in particular, have created tools to help consumers stretch the paycheck, avoid overdraft uh fees, build savings, improve payments, and access financial services in a way simply didn't exist a decade ago.
▶ 1:10:21Earned wage access is one of the things that we're highlighting today, and all of our witnesses or really four out of the five witnesses have done a good job describing how this works, why consumers want it, and I think Chairman Steil uh his question clarified and the answer clarified why it isn't debt. So, uh but I guess that debt is in the eye of the beholder because Ms. Reynolds Hand thinks that it's debt, but it seems very clearly that you're not obligated to repay something in the future. You're just paying a fee for a service.
▶ 1:10:51So, uh why I mean, who's served by treating it as if it's debt? How's this protecting Why do people view it as uh why would they want to categorize it as debt? Maybe Ms. Kelly, would you give us an answer what you think? Yeah, I we agree that this is not debt, that it is access to wages that are already earned.
▶ 1:11:17And we think it's a really important choice or option, and that's the hallmark of the fintech industry right now, providing choice and option to consumers um who are best positioned to decide how to uh how to utilize those products. I know we have earned wage companies here who can speak in detail about what they do. Um but as an overarching matter, we agree this is not debt. Mr. Levetan, your your take. Sure. Um I I think it's absolutely clear that earned wage access is not a debt is is not credit cuz it does not have debt.
▶ 1:11:48And I think as I alluded to earlier, a debt requires an obligation to repay. With earned wage access, as we as we've stated, it's a non-recourse product. So, if something happens, whether it's a technological glitch or the user, you know, somehow changes their functions, and the company does not recoup their money, we we don't go after the consumer. There is no risk to the consumer whatsoever. At most, maybe they'll be paused until you know, we figure out, you know, how how that happened. But there's no there's no risk to the consumer.
▶ 1:12:17There's no debt collection. Um they don't go to the credit bureaus. So, there's no Yeah, thank you. And I I think it's also, you know, essentially the same uh whether it's a direct-to-consumer or um you know, something that the employer offers as a service to the to the uh employees. So, and I'd say that look, this isn't a service that the idea that payroll is deferred into the future, and people would like to get paid uh isn't isn't new. I mean, this is old as the the Bible.
▶ 1:12:48You see stories about people who were paid one denarii for a day's wages. There are people that show up late in the day and are given one denarii, and they say, "Oh, it's not fair." Right? Uh so, we've had a debate about payroll uh as old as we've got written documents, I think. So, um but it's nice that we have this uh service, and I appreciate uh the clarification on it. You know, one of the other things that we've done for a long time is we've got state-regulated banks. And bank-fintech partnerships are incredibly important uh to to be able to provide access to consumers.
▶ 1:13:18When we think about community banks, a lot of people, that's where they find accessibility. And a lot of the biggest don't decide to launch massive products. They don't want to test the market. They want to be fast followers at best. Maybe the cutting edge is somebody smaller, more nimble, and willing to take a uh test a product that they don't have to necessarily spend as much um capital just testing it or getting into the market.
▶ 1:13:41So, um we've got um a regulatory framework that creates preemption around the country where uh banks are regulated. This is the Depository Institutions Deregulation and Monetary Control Act, DIDMCA, uh if I'm pronouncing that uh alphabet soup correctly. But essentially, if a bank's based in Ohio, um they're regulated by the regulators in Ohio, but because of preemption, they can service customers wherever customers want to reach out to them and access.
▶ 1:14:11How's that um being reinterpreted and reimagined, and and why? Uh Ms. Kelly, you got an answer on that? It Yeah, so as we uh thank you for that question. It's it's an important one. As we spoke earlier, uniformity is really critical. Predictability, certainty, uniformity for fintechs. And the ability of a bank to partner with a fintech to make a loan, for example, uh there needs to be certainty about which state's laws apply. And that has been threat has been thrown into question lately.
▶ 1:14:41There was a recent uh decision in the 10th Circuit that suggested states could override the law that would otherwise apply. And again, anything that creates disuniformity like that does makes it more difficult for innovation to Yeah, thank you. I'll be introducing legislation in the near future to rebut that uh ruling and make sure that we know the law is clear as it's been applied for a long time. Hope all my colleagues across the aisle will join in it. I yield back. The gentleman yields back.
▶ 1:15:08The gentleman from California, the ranking member on the Subcommittee on Capital Markets, Mr. Sherman, is recognized for 5 minutes. Mr. Chairman, uh off the topic of this hearing, this is the first meeting of a subcommittee of Financial Services since President Trump has begun this unprecedented use of the criminal justice system to contort it, to militarize it, and to attack the Federal Reserve, to try to take away its independence, and thereby imperil our economy.
▶ 1:15:38And if you're gullible enough to think that Donald Trump didn't order this to happen, you're probably gullible enough to think that he's been faithful to all three of his wives. Now, as to this hearing, the basic problem is rents too high, groceries are too high, wages are too and an awful lot of Americans don't have a thousand bucks in the bank. And so, they have to turn to all these and uh complicated systems to get their hands on a few hundred dollars.
▶ 1:16:11we're told that these are m- not payday loans. Many payday loan companies call themselves payday advance. Uh they are functionally equivalent to a payday loan, but the companies involved don't want to live by the same laws as the payday lend- lending folks. We're told instead that you're selling an asset you already So, Mr. Levetan, let's say my pay period begins on February 1st. I'm 15 minutes into the pay period.
▶ 1:16:41Uh I've earned I've been paid for every bit of work I've done for my company except for the last 15 minutes. How much can I borrow from your company? So, at Stream, it's
▶ 1:16:51Can I not borrow $500 from your company 15 minutes into the pay period? You can borrow up to 50% of your gross earned wages. We are integrated
▶ 1:16:59Of what I've already earned in 15 minutes, or what I'm going to earn during the pay
▶ 1:17:02No, what you've earned up to that moment in time. Only what I've earned up to that moment in
▶ 1:17:07in time. So, you've got a company that's there to help me, but you can only help me on significantly on February 14th. You can't help me on February 1st. Well, we can help you access any wages you've already earned at moment in time. We are integrated with your employer, so we know exactly at a time and attendance of I'll ask the gentleman sitting next to I got paid on January 31st. It's now February 1st. I need 500 bucks.
▶ 1:17:35Can I borrow five Can I get 500 bucks from your company? Um no, the only amount that you can take is how much you've earned up till that point in time. We don't let you go beyond what you have already earned. So, neither one of you will lend me even a hundred bucks on February 1st if I've been paid on January 31st. Um we're trying to make payroll be more efficient. People should not have to wait after they have worked to get their pay. That's what we're focused on. We're not trying to help them out if they need
▶ 1:18:00Are Are there firms in your industry though that will [clears throat] uh advance me every uh 500 bucks as long as I'm going to make 500 during this pay period or during the first Not in the earned wage access product. There are lending products that will do that. That That's an an interesting model. Uh now, you're uh you're seeking Well, I'll ask uh Ms. Hand.
▶ 1:18:26It seems like these companies are uh you know, direct competition for payday lending. They're doing the same thing. Uh um should they be exempt from even what many would call the insufficient regulations that we have on payday We think there should be the same regulation in the market product in the marketplace for products that are functionally acting in the same way.
▶ 1:18:53If a consumer is able to receive funds, defer the payment, um and if there are fees or fees that act like interest as they accrue over time, um these should be treated the same way.
▶ 1:19:08I will point out that uh people have calculated that the acceleration fee is three $400 uh three or 400% APR, which is why I've said APR is It's a crazy way to uh evaluate the fairness of a advance or a loan uh that is just for a few days. Um if uh you go to I go to my local ATM machine, I could go walk four blocks to my bank.
▶ 1:19:34So, I go to my own, save my I get my money uh well, you know, 10 minutes sooner and I pay two bucks extra. Uh you figure out the APR, $2 to get my money 20 minutes sooner. Um uh I the APR is in the tens of thousands. Um but we see that 90% of the uh folks that use this system uh are uh paying the acceleration fee.
▶ 1:20:01Uh should we regard Miss Hand this as a free service or uh is it a service that people are paying the acceleration fee on? I mean, what we see in terms of uh consumer usage is that consumers don't typically use these as a one-and-done product. I'm happy to follow up in in writing. Um they tend to stack these um loans and then it functionally that's where you see the equivalent of 300% or other high APR.
▶ 1:20:30I yield back. The gentleman yields back. The gentleman from Montana, Mr. Daugherty, is recognized. Well, thank you uh Mr. Chair. And thank you to the witnesses for spending some time with us You know, as a former securities regulator, I've uh dealt with a lot of issues in this space uh with digital Had to deal with ambiguous regulations that in in some cases have forced companies to look for offshore domiciles in innovating.
▶ 1:21:00And I think it's incredibly important that we continue to have innovation here in the United States of America and don't have that ambiguity that we have in the past that have made people decide to run their businesses elsewhere without a reasonable framework. Another thing that was really difficult for me as a regulator is the ambiguity we got from from the SEC at the time on how to treat these.
▶ 1:21:23And a lot of the, you know, enforcement by action rather than having a framework, which is why I think it's really important that we need clarity for digital assets and for artificial intelligence. So, I'm going to start uh with the Professor Zawicki. Uh I represent one of the most rural districts in the United States. Montana's second congressional district, uh we have multiple counties with less than 500 people in them. It's uh it's it's very very rural.
▶ 1:21:51So, how does financial technology increase access to banking services in areas that have sparse financial institutions like in rural areas of Thank you for that question because I think um
▶ 1:22:03the focus on financial inclusion for rural communities has been really understudied. Um and I think it's an area that's really important. It's an area that has become more important, as I mentioned in my opening comments, because of regulations like Dodd-Frank and the like, which have accelerated um the concentration of the industry and have uh the regulatory costs have led to the disappearance of a lot of rural uh banks, small banks, community banks, and the like.
▶ 1:22:31Um and [clears throat] um so, obviously, one solution would be to reform the regulatory system. But I think this is the vehicle for that. If you're talking about your local bank closes and now you've got to drive 90 minutes uh to get to to a bank in the next town.
▶ 1:22:46Um but fintech uh as a means for payments, as a means for obtaining short-term credit, uh for all these sorts of things, um it's really the obvious solution uh for these rural communities that have lost access uh to to financial services. Yeah. Thank thank you very much for your answer. Uh going to move on in the interest of time here. I was an advocate for regulatory sandboxes in Montana when I was a regulator.
▶ 1:23:13We uh effectively pushed a policy on insurtech and fintech was another part of this conversation. Gives uh an opportunity to try out things that may not, you know, exactly fit within a current regulatory uh framework. So, I'm going to start with uh Mr. Palaniappan.
▶ 1:23:32Uh what role can regulatory sandboxes play in allowing fintechs to test and scale innovative products while maintaining appropriate consumer I think when a when a company is in the early stage of trying to come up with a product that doesn't exist before, the existing frameworks and laws usually um haven't contemplated what they're trying to do. So, I think you do want to provide the freedom for um companies to try out new things with the right set of guardrails.
▶ 1:23:59I think there's also another set of startups where I would put Earned Wage Access, where the product is actually at reasonable scale. There's lots of evidence that it's better off for consumers. And when it gets to that stage, then you do want to have clarity that consumers know that the um product will continue to be available for them and also keeping bad actors out from that space.
▶ 1:24:17Thank you, Mr. Lefton. Any comments on Yeah, I I think that's a great question. I think sandboxes are critical for providers to work with regulators and figure out how best to serve the consumer. And I think a great example of something like that is Stream was founded eight years ago in the UK. And at the time, my founders basically came up with the idea, they knocked on the door of the Financial Conduct Authority, the FCA, and said, "We want to do this.
▶ 1:24:46How can we work with you to do this?" Right. And they worked hand in hand with the FCA in order to do this. And we brought that mentality over here and have tried, whenever we are given the opportunity, whether it's with state regulators or the CFPB or being here today, to work to see how best we can come up with appropriate regulation for the product. Thank you. Uh in the interest of time, Miss Galligan, I'm going to move on to you. Uh I often hear from banks and credit unions in my district how costly it is to comply with so many regulations.
▶ 1:25:15So, how can we ensure that compliance costs for fintech startups remain proportionate so that innovation is not stifled and pricing does not prevent these products from reaching the consumers they're intended to serve? Yeah, thank you for that question. So, I I think as we look to ensure that regulatory burdens don't stifle innovation, there are a few things we need to stay focused on. First, it's critical that we regulate activity and outcomes rather than Uh the core principle is same risk, same regulation.
▶ 1:25:44Second, uniformity and clarity are key. It's it's difficult to to run a business and and comply. We need to know exactly what it is we're complying with and reducing the number um of of competing uh regulations is critical. We think sandboxes done correctly play a very key role.
▶ 1:26:04can can conclude in in in written testimony. We appreciate her testimony. Yeah, thank you. I yield. The gentleman yields back. The gentleman from Illinois, Mr. Foster, the ranking member on the Financial Institutions Subcommittee, is recognized for 5 minutes. Thank you, Mr. Chairman, and to our witnesses. Uh Mr. Palaniappan, I was I was struck by the data that you mentioned about how Earned Wage Access produces a better motivated and more productive and reliable employee.
▶ 1:26:30And so, the question I have is, why didn't the free market competition among payroll providers uh simply make this a standard feature of all payroll processing equipment? Is it Was it just the overhead that Rep. Luetkemeyer mentioned of, you know, filling out your weekly timesheets and the whole rhythm there that people are Are is someone collecting the interest on this effective loan? You know, what is it that prevented this from just happening naturally?
▶ 1:26:55Um And I understand you're trying to disrupt it by making a full-stack payroll provider [clears throat] yourself, and that I presume has this as a feature.
▶ 1:27:03Earned In-Pay does do what you described as the payroll system. Um but typically, a payroll company does get interest on the money. The money is pulled from the employee's account, it goes into a master trust account. From there, the money goes into the employee's account, sometimes sits in the master trust account for some time. And then we also have to make payments for tax. Taxes actually not due immediately, taxes sometimes due quarterly, sometimes depending on the jurisdiction, it holds for more time.
▶ 1:27:26So, there is some interest that is being Um Yeah, is that the big I just wonder what what is your impression of why why this didn't happen naturally?
▶ 1:27:35it's different. Um I think the way we see payroll systems is we think there should be two consumers for a payroll system. There should be the employer and the employee. And we go employee first is how we actually have started the company. Most payroll systems think of the employer as their only customer. The employer is not the one who says, "I want the wages to be disbursed immediately." It's the employee wants that. Um and so, I think when you're
▶ 1:27:58It should be a competitive advantage to an employer uh if this is something they're offering.
▶ 1:28:03Exactly. Right. And so, I just anytime I see a like a failure of the free market to generate the right answer, I try to understand what drove that. Um Earned In-Pay does let employees access their pay when they need it. So, there Oh, yeah, now I understand. And I understand why you're probably gaining market share because it's Why didn't someone invent this two decades ago and have it happen automatically?
▶ 1:28:26I guess that's Anyway, if you have any thoughts on this, I don't want to use burn all my time here, but I I think this Uh it's an interesting question when we see it. Um now, the the big thing that I spend a lot of my time worried about is agentic AI. And because that is going to be disrupting everything. Uh you know, when um Mr. Zawicki's uh I use the dealer the car dealer, you know, when you can go into a car dealer and get a car.
▶ 1:28:52And then, so, what happens now is that you go and you strike a price on the car, and then the car dealer will try to steer you into some crappy overpriced loan, which is a big part of their business model. And in the agentic future that I think many of us dream about is that you're going to have the Consumer Reports app give you advice and say, "Okay, all right, here is Are you struck a deal for this car?" And then your Consumer Reports agent will go out on the internet and look and see what's available for loans, get the low-price loans and say thank you very much, Mr.
▶ 1:29:23Dealer, there's a better And in trying to preserve that kind of competition is I think what good is going to be the challenge of the next decade in in financial services. And And the key thing there it seems to me to how do you get unconflicted financial advice to the consumer?
▶ 1:29:40You know, who is it You know, this this is the problem because when when startups come up to me and come into my office and say, "Um we have this great new personal advisor product, AI advisor." And then I say, "Okay, how are you going to monetize that?" It always comes to some variation of we are going to be just like Google. We will get everyone to trust us and then we will abuse that trust by steering people into crappy overpriced products.
▶ 1:30:04And And so I just How do you What are the the best thoughts out there on on getting unconflicted advice to consumers through their AI apps? Yeah, Mr. Sawicki, you look like you've been thinking about this. I've been thinking about it, but I'm not certain I have a great uh solution except I mean obviously there's always been a market. I'm sitting next to somebody for Consumer Reports which has been around for almost a century for unbiased um information for subscription-based information and the like.
▶ 1:30:32Um and I agree with you that agentic uh um AI is is really important. And another thing I would say is the the dealing with the emerging issues of consumer data privacy um and the idea of AI um and the idea of bad guys, fraudsters, having AI um and being able to um basically attack the way in which we've done consumer uh data security for years with our passwords and all that sort of stuff.
▶ 1:31:00I'll show you. Yeah, when I go through the list of what government can actually do to help, number one on the list is get uh government support for um mobile ID. Digital driver's license is a means of reliably authenticating who you are, proving you are who you say you are online. But second to that is have NIST or someone like that come up with the standards of AI communication. Yeah. And this is something that I'll be following up I think with you because that's something that would move the ball forward and get US standards to um really be promulgated around the world.
▶ 1:31:30I'd enjoy that dialogue. That'd be useful. The gentleman yields back. The gentleman from Tennessee, Mr. Rose, is recognized for 5 minutes. Thank you, Chairman Stahle, and thank you, Ranking Member Lynch, for holding this important hearing. And thank you to our witnesses for taking time to be with us. Uh Mr. Lefton, how do earned wage access products enable consumers to meet their financial obligations without incurring overdraft and late fees? Sure, thank you. I think that's a great question.
▶ 1:31:59Um I think it was alluded to before that over 100 million Americans live paycheck to paycheck and the same number have less than $400 in savings. Uh EWA enables users to access their already earned wages at either no cost or for a low nominal fee. And I think that's important because it gives them choice. There's competition now and that's at a much lower price than the traditional predatory products out there.
▶ 1:32:26And every time they use a service like EWA over a traditional high-cost product, they're putting more money in their pocket. So it seems to me that one of the risks here is of course once you do this once if it continues then you've you've kind of accessed that that resource and then you're not able to go back to it.
▶ 1:32:49Is Is the evidence that that's what happens in fact or does it kind of Is there evidence that this that consumers tap it, then pay it back, then tap it? How do How does that end up working in the
▶ 1:33:01I think that's a great question. I think you're talking about cycle of debt which EWA, to be clear, has nothing to do with debt. It's it's a frequency of pay issue, right? It's a timing issue. And charging interest, requiring minimum payments, rollovers, those are all significant features in a cycle of debt, none of which [snorts] are present with EWA.
▶ 1:33:20And our data shows that EWA users actually spend less and save more when they are in control of their own But once you collect your wages early, if you will, does it Do you kind of stay in that cycle and you do that paycheck to paycheck? Is that the evidence or does it kind of go go and come? So I think it fluctuates. I mean I mean it really depends on every user's situation. Right?
▶ 1:33:47It depends on their on on their income, their you know, how much they make, where they live, all those kind of outside factors that we don't have insight to. But I think it spans the the entire spectrum. Thank you.
▶ 1:34:00Sure. Uh Mr. Paul Nappen, um how does earned wage access complement existing financial products to benefit current So earned wage access is is an additional tool for customers and um what it does it helps them control the timing of when they get paid. So instead of being stuck to this rigid biweekly or monthly pay cycle, they can choose when to get their pay. And they can use that along with other financial products. We have a number of financial products as well within our app. We have automated savings, credit monitoring.
▶ 1:34:30And so they all work well together. Um and sort of coming to the the question on the repeated use, I think different people use it in different Um it's used very often to pay bills and to pay rent. The most common pay cycle in the US is you're paid every other week. Every bill is monthly. So for every bill, six times a year, the bill is due before payday.
▶ 1:34:54Um and so what you can do with earned wage access is is access the money when your bills are due instead of having late fees added onto your bill. Um we also see a lot of people who are using this um as a way to increase their Um so I did mention the government employee uses us with his side custom candle business and he's making more money on his side business because of that. Spoke with another customer who works in retail. When you work in retail there's different types of roles. With one role you're tied to a particular store location.
▶ 1:35:22With another role you're tied to a department like a cosmetics department and you cover about three different store locations. That role pays more. Um but she when she was offered the higher-paying role she didn't take it because she could not afford to front the gas money and then wait to get reimbursed. And so now she uses Earnin. Um so when she got the offer again she took it the next time because she knew that with Earnin she could actually afford to front the gas money. So Earnin has helped her stay employed at a higher-paying job. Um so that can make sense that she uses it because that's what's keeping her in in that job.
▶ 1:35:51So I think in many cases you're seeing incomes go up and incomes go up because of reasons like this. And And I think Mr. Paul Nappen, you you may weigh in on this. And Mr. Lefton, I think this is the the point you were trying to make. There's a very big difference between earned wage access and payday lending as we know it. Uh Mr. Lefton, weigh in on that. Really press down on the difference. Sure, absolutely.
▶ 1:36:15Um I think the key differences with any loan product and earned wage access is there's two components to a loan. There's debt and there's interest. And with EWA there's neither. And I think that is a fundamental difference that when we talk about this people need to understand and realize that with EWA there is no debt. With EWA there is no interest. And those two things together are what form a loan. Thank you. My time's expired. I yield back, Mr. Chairman. The gentleman yields back.
▶ 1:36:45The gentlewoman from Massachusetts, Ms. Pressley, is now recognized for 5 Uh thank you, Mr. Chairman. I'm certainly glad we're having today's hearing to discuss buy now, pay later. And while um admittedly I'm old enough to remember the layaway line decades ago um where you didn't get the product until you paid for it, we are certainly living uh in a different era. Klarna, Affirm, Afterpay, and PayPal are the four biggest buy now, pay later companies and they are everywhere.
▶ 1:37:13Uh with a simple press of a button on your phone you can access product immediately and pay for it over time. To that does sound like a loan. A person is borrowing lump sum funds that they will have to pay back over time in the form of an installment plan. And if they miss payments it can go to debt collection, show up on their credit report, and lower their credit score for years. Ms.
▶ 1:37:37Hand, do you agree with my assessment that buy now, pay later is a Yes, absolutely. There you have basically two models in the marketplace. You have the pay in four or sometimes six, right? You pay back um those four or six payments. There's no fee typically. There's no interest. That might not be a loan under the definition. Um and then you have the installment product, right? These are longer term. Let's just say you are buying appliance for $2,500.
▶ 1:38:08Um that would come with actual interest. Let's say the interest is 24% um or 36% um over 24-month period. A consumer for that product is going to be paying um not $2,500 for the product. Um the effect of that APR over 24 months is roughly $1,070.
▶ 1:38:34then. And Ms. Hand, before the Trump administration rescinded uh guidance a the Consumer Financial Protection Bureau, and I want to underscore consumer protection a financial bureau, took important steps to ensure proper treatment of these loans uh like the ability to dispute charges and to obtain refunds.
▶ 1:38:54What are some of the harms that borrowers face now that those rights and protections are gone and uh we have people working working actively to gut and to uh uh degrade the work of the CFPB. Yeah, it's it's quite alarming to see a marketplace evolving frankly in a way it should have been um for the last 20 years to provide more access to different products to consumers at the same time that the consumer protection has shut down enforcement, examinations
▶ 1:39:25of financial institutions aren't happening. This is alarming and this is not the way a healthy marketplace is supposed to operate. What this means is you know the only ability is perhaps states who are actively looking for patterns and trying to regulate these products. State-by-state regulation should not be our default. We need strong federal floors to protect consumers.
▶ 1:39:56I just with a quick yes or no here as my time is uh leaving us. Do you think buy now pay later companies are being transparent enough to ensure consumers know what they are signing up for? They could do better. Okay. Thank you. Even when buy now pay later lenders are operating with transparency and following truth in lending laws, we must acknowledge that these fintech innovations do not get at the root problems.
▶ 1:40:24It's wage stagnation that leaves the young parents unable to keep up with the rising cost of living for their family. It's corporate greed that prioritizes profits at the expense of workers that are pulling double shifts. Donald Trump's fiscally a chaotic and irresponsible policies that has reduced hiring and increased unemployment and ignored the affordability crisis that is plaguing our country. While fintech may help stand in the gap, people don't want to just get by.
▶ 1:40:52They want to thrive and prosper and achieve their dreams. So, Congress must get serious and fight for the people, not the corporations. I yield back. The gentlewoman yields back. The gentleman from South Carolina, Mr. Timmons, is recognized. Thank you, Mr. Chairman. I want to thank the witnesses for being here today. Fintechs are transforming the way Americans interact with financial Millions of people around the world have already seen their lives meaningfully improved by digital assets and the services provided by fintech companies.
▶ 1:41:22From expanded access to capital to faster and more secure money transfers across often authoritarian borders, these technologies are already reshaping the global financial landscape. I met with countless innovators who are building products that meet real consumer demand and help families better manage their financial lives, particularly those who have been underserved by the the traditional banking system. This progress, however, depends on getting the policy environment right.
▶ 1:41:46Outdated rules and inconsistent regulatory interpretations can slow the adoption of beneficial technologies, limit common competition, and drive innovation offshore. True leadership in financial innovation means providing clear, predictable guardrails that promote responsible innovation here in the United States rather than pushing it overseas. Mr. Lipton, what regulatory barriers currently prevent new fintech companies from going to market in ways that satisfy clear consumer demand? Sure, thank you for the question.
▶ 1:42:15Um I think some of the regulatory barriers are the lack of clarity and ambiguity. Um you know, we've seen at the state level, while numerous states have passed pro EWA legislation, um it can be difficult to comply with a patchwork of regulation, uh which I think ultimately flows down to the consumer, right?
▶ 1:42:39Um Clear regulation, unambiguous regulation allows companies, while also protecting consumers, to thrive with innovation. And I think one of the greatest examples is, while we are we do provide EWA, we have also created a savings product for consumers that is free of charge. And many of our consumers, this is their first savings account.
▶ 1:43:03And we're paying 5% interest into their savings account, one that they've never had before, and all in the light of that, we were able to innovate. And I think innovation is deeply connected to with clear regulation. Thank you for that. I'll talk about the CFPB briefly.
▶ 1:43:21What steps should the bureau take to provide clear, more predictable guidance for fintech firms, particularly smaller or early stage companies, so that compliance expectations are known before products are launched rather than enforced after the fact? What do you think about the CFPB and its role in this? Sure.
▶ 1:43:39Um I think the CFPB recently they and I'll only talk about earned wage access, but I think December 23rd, just a few weeks ago, they released their advisory opinion around earned wage access and it really resolved the regulatory uncertainty, right? It made it very clear and it confirmed what Stream and the entire industry has been saying for years that EWA is not credit and that the nominal fee is not a finance charge.
▶ 1:44:09And I think that is critical to the providers in innovating and competing, which ultimately leads to greater products and lower prices for the consumer. It's almost like the last 4 years we were out of balance and we got back in balance and things are go- moving in the right direction. Weird. Uh Professor Zwicky, in 2024, the CFPB took several actions related to buy now pay later products, including applying aspects of the payday lending rule and certain regulation Z obligations.
▶ 1:44:37In your view, how would these measures have hindered uh the buy now pay later market in the United States? Yeah, I think that's a good example of trying to jam new technologies into an old bucket and into an old hole. I mean, Ms. Hand herself was just sort of talking about sort of how these products aren't exactly like old-fashioned products like credit [clears throat] cards and that sort of thing. This is a totally different product. You don't have If you pay on time, you don't have interest accruing.
▶ 1:45:06they're talking about like sort of, you know, applying a regulatory framework that now only fits imperfectly as it's grown up over time to a brand new technology. I think what they really need to do is start over and think about what exactly are the challenges of this product for consumers and and create its own framework rather than that blunderbuss of a regulation that would have, I think, killed the product. Thank you, Professor.
▶ 1:45:36As you've outlined, there's real risk that misapplying legacy regulations to innovative products could reduce access and push consumers towards less transparent or less suitable alternatives and that would that outcome would undermine rather than advance consumer protection. I think that we're moving in the right direction with uh the CFPB and we got to we got we got to keep up the good work. Thank you and I will yield back. Gentleman yields back. The gentleman from New York, Mr. Torres, is recognized for 5 minutes. Thank you, Mr. Chairman. I'm a Bronx boy, so I have no farming analogies.
▶ 1:46:05Um It's been a while since the Bronx was farmland. Uh Earned wage access is based on a simple If you're a worker, you should have the right to access the money you earn the moment you earn it and the moment you need it. The notion that you must wait 2 weeks or even a month before accessing your own earnings should be seen as a scandal. It should be seen as an anachronism in a world that's technologically advanced as our own.
▶ 1:46:32I have constituents who have fallen behind on their bills despite working Who have fallen behind not because of a lack of earnings, but because of a lack of access to their earnings. A lack of access to one's earnings puts the most cash-strapped Americans at risk of falling victims to the abuses of payday lending and overdrafts. And so in Congress, we have a choice. Either we give working people safe and immediate access to their own earnings or we set them up for financial traps like payday lending.
▶ 1:47:03To be clear, like any financial product, EWA is neither inherently safe nor inherently dangerous. It is only as good as its design. We in Congress must ensure that EWA is designed to be a solution to a problem rather than a problem of its own. Congress should adopt a regulatory framework that designs EWA to be a free and affordable alternative to payday loans or overdrafts.
▶ 1:47:28And so my first question to the CEO of Earnin, do you believe as I do that EWA providers should be required by law to offer free option to consumers? Now, the EWA industry maintains that EWA is qualitatively different from credit and therefore should be regulated If we accept that premise as true, it then logically follows that there should be no collections, correct? That's correct. There should be no charging of interest, correct? That's correct.
▶ 1:47:55be no late fees, correct?
▶ 1:47:56That's correct.
▶ 1:47:57There should be no wage garnishment, correct? That's correct.
▶ 1:47:59There should be no adverse credit reporting, correct? That's correct. Right, no collections, no interest, no late fees, no wage garnishment, no adverse credit reporting. Simply put, EWA should function as a free or affordable alternative to payday loans and overdraft fees, correct? That's correct. Okay. Now, there's a debate surrounding the appropriateness of applying APR to earned wage access. APR is deeply informative when it comes to long-term products.
▶ 1:48:25But when it comes to something as extremely short-term as EWA, does APR inform or does it misinform? And I want to make a point by way of illustration. Suppose I were to give you a 1-day $100 loan with a $1 fee. The average person would consider that $1 fee not to be excessive or exploitative. It's $1. What if I were to tell you that $1 fee translates into an APR of 365%? Right, 365% sounds massive.
▶ 1:48:56And so the trouble with applying APR to the most short-term product is that annualization can make even the smallest fees seem massive on paper. A $1 fee can be made to seem massive when presented as an annualized percentage. Is that a fair point? That's So, the question for Congress to is not whether there should be disclosure. Of course, there should be disclosure of all fees, of all cost. What is needed is the right kind of disclosure.
▶ 1:49:25Disclosure that informs rather than misinforms, that illuminates the truth rather than distorts it. So, consumer protection, proper disclosure, and innovation should be our policy objectives. I don't know if anyone has any thoughts. I do. Yeah. Um I would agree with everything that you said. I think it additional standard that applies that's missing in the space, particularly fintech, is dynamic disclosure, disclosure at the right time.
▶ 1:49:53Um we have technologies that can deliver funds to consumers instantly. Those disclosures should be delivered instantly, plainly, simply, and accessible way. The other principle that applies is um protective design or consumer-friendly design. So, one of the things that we have seen in this space, the products that we have looked at, is oftentimes those zero-cost options, particularly in the direct-to-consumer space, are hidden.
▶ 1:50:22The defaults are options where the consumers will pay a fee even where there is a zero-cost option available. So, the technology should be designed in a way, to your point, where it it functions so that there is no cost. What what good is a free option if you're unaware of it? Sorry? What good is a free option if you're unaware of it? So, and I feel like those are eminently solvable problems that I'm I'm I'm I'm proud to co-lead the legislation with Congressman Steil. He's more rural than I am.
▶ 1:50:52Uh so, I'm I'm happy to elicit your feedback. Thank you. Yep. I'll I'll just add it warms my heart to hear you talking about re-examining APR as a way of disclosing products to consumers. Exactly the reason I said we talked about this in the Senate. I'm not quite I'm not sure if I said that, but only in the EWA context. Right. But but to to to compare apples to apples, right? Consumers compared to say an overdraft or the late fee on a bill to try to they they they look at dollars a lot of times rather than APR.
▶ 1:51:23Gentleman yields back. Uh the gentleman from North Carolina, Mr. Moore, is recognized for 5 minutes. Thank you, Mr. Chairman. Financial technology is transforming how Americans earn, spend, and save their money. From peer-to-peer payment apps and digital wallets to earned wage access and installation products, fintech innovations are responding to real consumer needs for speed and affordability. These products exist because they fill gaps in the traditional financial system, especially for consumers who have historically faced limited options or high cost.
▶ 1:51:53Um with my questions, I'll start with Mr. Zwicky. Are there any particular populations, you know, hourly workers, gig workers, rural communities, who benefit most from fintech services? And how are these tools especially helpful to them? Yeah, the the the the evidence on this is abundant at this point that traditionally um under uh served communities are the ones who benefit the most from fintech and fintech innovations.
▶ 1:52:20Um whether it's rural, whether it's young people, BNPL, for example, um is used heavily by Gen Z and uh millennials. Earned wage access, obviously, is used uh very popular and used a lot by hourly workers who often live paycheck to paycheck. Uh upper-income people are using these more, especially BNPL, but really the value uh proposition is for those groups.
▶ 1:52:42Fintech and fintech underwriting, use of alternative data like cash flow data uh as opposed to credit scores and the like, the evidence on that is very clear that that increases competition and benefits people most who are traditionally underserved and where competition is uh uh traditional competition among banks is not very robust, which includes rural communities, obviously. Uh Mr. Pallone and uh Mr.
▶ 1:53:07Wexton, how have earned earned wage access services improved financial stability for workers, and how are these products helping make everyday expenses more Thank you for the question. Um The the first thing that earned wage access does, that which is what most people expect, is helps people pay their bills on time. So, there's fewer late fees on bills, there's fewer um other expensive fees because they're paying their bills on time. There's also non-financial benefits, where there's less stress.
▶ 1:53:37So, I um hear from our customers how they're able to send their children on field trips because they have access to our product, which they wouldn't have been able to do otherwise, celebrate birthdays on the right days, go to see a dentist when their tooth starts aching instead of putting that off to Friday. I spoke with a customer in um she works in healthcare, and her daughter likes to dance. Um she has to pay for dance class at the beginning of every month, and she wouldn't have been able to do that without Earnin. So, now her daughter goes to dance classes and today takes part in dance competitions and can follow her passion for dance because of Earnin.
▶ 1:54:07Um and the other um benefit that I spoke about in the testimony as well is that incomes go up. Incomes go up by over 10%. Um from the Earnin data set, a study on over a million customers, incomes went up by 11.5%. That's about $335 per month. And so, we think incomes go up as well when people start um using earned wage access. From our data, we're actually seeing incomes go up faster than inflation. And so, we're seeing wage growth in real terms as well.
▶ 1:54:36Over what time period have you seen those increases? Um we've seen wage increases higher than inflation over the last 3 years. Mr. Wexton, did you care to respond as well? Sure. Well, first I agree um with everything that was just said. I think I think one of the things we need to remember when we're talking about EWA is that EWA users are not financially illiterate. They're just experiencing a frequency of pay issue.
▶ 1:55:05And so, I think it's important we don't conflate the two, right? Consumers use EWA because they need to be paid on their own timeline, not because they don't know how to manage their own money. And I think that's a very important distinction. We need to trust that the user is in the best position to know how and when to to to access their wages and manage their money. You know, one thing that seems has worked to me at the state level and otherwise or you know, really to try to bring about innovation.
▶ 1:55:31And so, like the regulatory sandbox legislation, our state adopted that a couple years ago. It allows financial institutions and technology firms to test new products under the supervision of regulators. Um so, I I guess just a follow-up question to Mr. Zwicky, how can regulatory sandboxes help regulators better understand new fintech products before imposing broad rules?
▶ 1:55:55Yeah, briefly, I'll just amplify on the EWA question, some of the points that my colleagues have made here, uh which is I think the best study on this is the Davis study, who in addition to finding income goes up, also finds that there's no financial problems. People don't overdraft more, do any of that sort of stuff, as opposed to the Connecticut study where they found losing access to EWA led to a lot more payday having to sell uh um products and that sort of thing. With respect to sandboxes, I think sandboxes are revolutionary. I think they're super important.
▶ 1:56:25Uh the ability to get real-time information, tweak products, even the discrimination type questions that were being raised, I think could be addressed very well with regulatory sandboxes to make sure those products operate the way they should. Thank you. And my my time is up. I did have other questions for the other witnesses, but I appreciate you all being here today. With that, I yield back, Mr. The gentleman yields back. The gentlewoman from Texas, Ms. Garcia, is recognized for 5 minutes. Thank you, Mr. Chairman, and thank you to all the witnesses. And uh I first want to associate my remarks uh with the remarks of Mr. Torres.
▶ 1:56:54I think it they were right on point. And and to the chairman, I didn't sack potatoes, but I sure as hell picked cotton. Uh and we did not get paid daily. We had to work our asses off in the hot Texas heat all week until we saw any money uh Friday afternoon. Um but it just underscores the point that that workers do deserve to get paid uh and get paid well, and not under the table to avoid all these things.
▶ 1:57:25Uh and to make sure uh that they can have access to their money when they're needed. Uh and like um Representative Pressley said, I I'm waiting for the layaway plan cuz one of the things my mother used to do at the beginning of the cotton season is take us into town and we would pick what we thought we might need for school in Um and then she'd pay weekly till we got to September. Now, if you gained a little weight, you were in trouble.
▶ 1:57:53Uh but that's how it was done. And and uh some people are still living paycheck to paycheck. According to the Urban Institute, 52% of Americans do not have the money to cover essential costs such as housing, food, healthcare, childcare, transportation, and education. 52%. That's a lot of people. But in my district, it's even worse, Let that sink in.
▶ 1:58:21So, as many of my colleagues mentioned, there is an affordability crisis. To call it a hoax is just flat a hoax. The American people are struggling to support themselves and their families day by day, paycheck to paycheck. That's why many Americans turn to alternative income income sources uh that we've been discussing today.
▶ 1:58:42However, as financial technology and these products become more common, I share my colleagues' concerns that without consumer protection, these products will only take more money out consumers' pockets. Ms. Hand, as we discuss how to regulate these products in in uh several people have said that um especially the earned wage access is free. Is it really free? There's a variety of of different um products in the marketplace.
▶ 1:59:12In fact, um we've recently looked at 23 different um companies out there, both employer sponsored and direct to consumers. Um the employer sponsored products are typically less risky and basically you see what you've heard here today.
▶ 1:59:28But are they free? So in those products can be free. Um for more of the direct to consumer products, those some of them have free options, but then they do have fees, so they're effectively not free. Um some of those free options we have seen are hidden and they default um consumers are defaulted into um fee structures um which may be clear and hidden.
▶ 1:59:57So um and the other thing that I would add is that many consumers are using these on a weekly basis, so they're effectively stacking fees on a weekly basis and then their ability to repay over time. So I would say that effectively these are not free products.
▶ 2:00:15Okay, now what about the uh buy now buy now pay pay later? Is that free? There are simple products, pay in four, where if a consumer is successful, that is effectively a free service. Then you go down the installment path where these are loans. Um they're structured as such, they have interest.
▶ 2:00:34Um and I think one of the challenges that we've seen is often times the consumers um and our research support this, um they see an advertisement, they go to pay for something and they said they get offered the pay in four um product. Um then they go through the application and they end up in an installment loan product and often times are not really aware of the long-term effects. So So are are some do some have APRs as high as as was illustrated by his example?
▶ 2:01:03I mean, $1 on $100 doesn't sound bad. but once you do the math, the percentage is really high. Yeah, if if that $1 then gets deferred, um you add on late fees if those apply, or um the consumer simply doesn't have the ability to replay repay in um the time that they've originally agreed to, that will put a consumer into a fee structure.
▶ 2:01:34Yeah. Just just curious, what what would you consider a fair fee for the service? Let's not talk yet about penalties and you know, installment payments later or anything cuz it seems to me that one of these products is no more than a high-tech payday loan We'll allow the gentlewoman to to submit answers in the in the record.
▶ 2:01:56just beginning to have fun. Thank you. Thank you to all the We thank the gentlewoman. The gentlewoman yields back. The gentleman from California, Mr. LaCar is recognized for 5 minutes. Thank you, Mr. Chair. Uh I want to thank all the uh witnesses for their testimony and uh particularly Mr. Pun Pun the Appan.
▶ 2:02:15Uh please forgive me if I just mispronounced your name, but it's good to have a local company here uh and congratulations on the great success of your company and I appreciate very much uh what Earnin has done to enable millions of American workers to have more freedom in their lives. Uh that's very important. Um and I also, by the way, appreciate Ms. Rounds' uh important observations. I think we have good players and we have bad players in this industry, like all industries. Uh we need transparency.
▶ 2:02:45We appreciate those who are transparent and for those who aren't, that's why we need simple, predictable regulations. So very much appreciate points being made all round. I'd like to shift gears though um from EWA uh to the broader topic of the the hearing in the subcommittee, uh which is uh fintech regulation uh and innovation. And Ms. Kelly, I'm going to turn to you uh because I know you represent a lot of folks in the industry.
▶ 2:03:10An awful lot of focus in recent weeks and months has been whether or not uh fintech companies can get access to the federal payment rails, FedNow uh and other transmission means like FedWire. Uh I think there's been a lot of discussion certainly Treasury publicly as well at the Federal Reserve. There's now, I think, a request for information from the Fed.
▶ 2:03:36Uh they're looking for feedback about what a skinny account might look like or a payment account as a I guess a an option uh that would be distinct from a master account. Um and I guess regardless of whether the Fed or Congress creates this, clearly there needs to be some regulation on those fintech companies that would avail themselves of this opportunity. Uh there's a lot of ideas from BPI, from Fed, and others about what regulations those companies should be subject to.
▶ 2:04:04Um things like Bank Secrecy Act and KYC and uh anti-money laundering, whether or not they should should be prohibited from overdrafting, from charging interest, etc. Do you have some views about what regulations would be appropriate uh for us to be thinking about here? Uh yes, and thank you for the question. It it is a particularly uh dynamic and interesting time to be in this industry and I I think what you've just described reflects that.
▶ 2:04:31Uh so I would start by saying in in the relationships that exist now between banks and fintechs, where they partner to provide services, uh they are there is a holistic set of regulations. There were interagency guidelines that were released in 2023 that effectively uh require banks to ensure that their fintech partners are following the same regulatory requirements that the banks must follow. Uh so so we're operating against that backdrop.
▶ 2:04:59As as we look forward and say, you know, should these, you know, non-traditional bank fintechs have access to the Federal Reserve, um that is a conversation that has has begun with the RFI uh and, you know, the the conversations around the skinny master accounts. We are in very early days of those um and I know the industry as a whole is still trying to understand exactly what that would look like.
▶ 2:05:25Uh but what is clear is there needs to continue to be a balance between fostering innovation that we see from non-traditional banks, but ensuring safety and soundness as well. And the skinny master accounts is one attempt to strike that balance um and again, still in the early days. Okay, so no commitments yet about what concessions industry might make about what regulations would be sensible for those who have access.
▶ 2:05:53I I think that's still an open question. Okay, well, I look forward to continuing to engage uh with you and uh with your members uh to understand what that might look like. I think this is coming at us pretty fast and we probably need to understand best how to respond. Uh regardless, I I appreciate uh the efforts of many fintech companies to innovate in a space where I think do need more choices and I appreciate uh the work that's being done by many of the companies here. Thank you. The gentleman yields back.
▶ 2:06:21I'd like to thank all of our members for their questions today, all of our witnesses for your testimony today. Without objection, all members will have five legislative days to submit additional written questions for the witnesses to the chair. The questions will be forwarded to the witnesses for their response. Witnesses will please respond no later than February 17th. The hearing stands adjourned.