Senate Banking Committee Holds Hearing on New Consumer Financial Products
Last week, the Senate Committee on Banking, Housing, and Urban Affairs convened a hearing to examine “New Consumer Financial Products and the Impacts to Workers.” It proved to be another hearing in which Democrats and Republicans on the panel sparred over whether new financial products, namely Buy Now Pay Later (BNPL), Earned Wage Access, and Training Repayment Agreements, were beneficial or harmful for consumers.
In his opening statement, Senator Sherrod Brown (D-Ohio), who chairs the committee, acknowledged that borrowing money is at times necessary and “products that are well-designed, transparent, and regulated can help workers pay off an unexpected car repair, or help with the grocery bill, or cover a medical expense.”
However, Brown said, “for too many workers, the only credit products available lead to more debt and more financial instability.”
Buy Now Pay Later products, he said, “could help consumers pay for products in installments, with strong consumer protections. Yet many of these products come with hidden fees, they lack transparency, and they aren’t underwritten properly. Ads encourage consumers to use these plans for multiple purchases, at multiple online stores—racking up debt they cannot afford to repay.”
Sen. Pat Toomey (R-Pa.), the Committee’s Ranking Member, defended BNPL products as “offer[ing] consumers more options for short-term funding.”
“This service can be an attractive way for consumers to manage their cash flows to obtain goods and services without having to pay interest,” Toomey said. “That’s especially true for consumers who don’t have or don’t want to use a credit card for such purchases. This may explain why BNPL is most popular among younger consumers, who have shorter credit histories.”
Toomey also noted that BNPL companies make their money from retailers, who pay a small percentage of the transaction cost to offer BNPL services to customers.
Brown saved his harshest remarks for Training Repayment Agreement Provisions, or parts of employment contracts that allow employers to charge employees to leave the job within a set period of time to recoup any costs associated with training them. These products, he said, “are so predatory, so offensive they should have no place in our financial system.”
Witnesses at the hearing included Rachel Gittleman, Financial Services Outreach Manager at the Consumer Federation of America; Penny Lee, CEO of the Financial Technology Association; Professor Todd Zywicki, George Mason University Foundation Professor of Law at the George Mason University Antonin Scalia School of Law; and David Seligman, Executive Director at Towards Justice.