HFS Explores FinTech at Subcommittee Hearing

The House Financial Services (HFS) Subcommittee on Financial Institutions and Consumer Credit held a hearing on January 30th entitled “Examining the Opportunities and Challenges in the Financial Technology (FinTech) Marketplace.” The hearing centered on Congressional questions and concerns regarding the enormous potential of FinTech through online lending, cryptocurrency, and other innovative financial service solutions. The panel invited to speak on the subject included:

• Mr. Nathaniel Hoopes, Executive Director, Marketplace Lending Association
• Mr. Brian Knight, Director of the Program on Financial Regulation and Senior Research Fellow, Mercatus Center, George Mason University
• Mr. Brian Peters, Executive Director, Financial Innovation Now
• Mr. Andrew Smith, Partner, Covington and Burling, LLP
• Mr. Adam Levitin, Professor of Law, Georgetown University

Subcommittee Chair Blaine Luetkemeyer (R- MO) noted that it was a goal of the hearing to explore ways to improve access to capital, revolutionize how consumers interact with financial institutions, and have a positive impact on underserved consumers. Ranking Democrat on the subcommittee, Lacy Clay (MO) added that he hoped the findings from this hearing would help overcome a potential bias against technology in financial markets and further promote safe financial inclusion and health. A Consumer Financial Protection Bureau (CFPB) survey last year found that nearly half of all Americans struggle with financial well-being.

Many of the panelists pressed for greater cooperation between federal regulators and the companies they oversee. Overbearing regulation was seen as having a chilling effect on the innovative spirit of FinTech companies. A sandbox where regulators and companies could freely interact and test new ideas was a frequent recommendation from panelists.

The controversial federal circuit court decision in Madden v. Midland Funding concerning the valid when made doctrine was debated at length. Panelists and members of the subcommittee tended to agree that the case damaged the abilities of banks to partner with FinTech and a Congressional remedy was needed. A bipartisan coalition in the Senate last year proposed a bill that would correct the court’s decision and reestablish the valid when made doctrine.

Another topic that received considerable debate was the mixture of regulatory schemes currently overseeing FinTech. Panelist Andrew Smith explained that it takes around 2 years and costs millions of dollars for a FinTech company to currently become licensed and comply in all the different state and federal jurisdictions. Rep. Royce (R- CA) added that interstate commerce, like the lending and financial operations provided by FinTech, should be under a uniform system of regulation. He stopped short of saying that such a system should be housed under the federal government, leaving the door open for a cooperative state system.

State financial regulators are enveloped in a longstanding dispute right now with one federal financial regulator, the Office of the Comptroller of the Currency (OCC), over the OCC’s proposal to bring FinTech companies under the federal umbrella via a special purpose bank charter. Although still not ready for deployment, the OCC’s FinTech charter system would shield companies from a patchwork of state financial laws.

The proposal was quickly challenged in court by the state of New York and the Conference of State Bank Supervisors (CSBS). CSBS is rolling out an alternative to the FinTech charters, called Vision 2020. The initiative seeks to standardize state regulatory systems and develop a data sharing accord that helps states maintain up-to-date information to craft new rules. The vision includes components for a multistate licensing system and industry advisory panel. The hope is that the new measures will aid state regulators in keeping current with new technological breakthroughs and ease the ability of banks to provide services to non-banks.