[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]



 
                      EXAMINING OPPORTUNITIES FOR

                  FINANCIAL MARKETS IN THE DIGITAL ERA

=======================================================================

                                HEARING

                               BEFORE THE

                 SUBCOMMITTEE ON FINANCIAL INSTITUTIONS
                          AND CONSUMER CREDIT

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                     ONE HUNDRED FIFTEENTH CONGRESS

                             SECOND SESSION

                               __________

                           SEPTEMBER 28, 2018

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 115-121
                           
                           
                           
                           
                           
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]                           





                         _________ 

              U.S. GOVERNMENT PUBLISHING OFFICE
                   
32-372 PDF           WASHINGTON : 2018      




                           

                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                    JEB HENSARLING, Texas, Chairman

PATRICK T. McHENRY, North Carolina,  MAXINE WATERS, California, Ranking 
    Vice Chairman                        Member
PETER T. KING, New York              CAROLYN B. MALONEY, New York
EDWARD R. ROYCE, California          NYDIA M. VELAZQUEZ, New York
FRANK D. LUCAS, Oklahoma             BRAD SHERMAN, California
STEVAN PEARCE, New Mexico            GREGORY W. MEEKS, New York
BILL POSEY, Florida                  MICHAEL E. CAPUANO, Massachusetts
BLAINE LUETKEMEYER, Missouri         WM. LACY CLAY, Missouri
BILL HUIZENGA, Michigan              STEPHEN F. LYNCH, Massachusetts
SEAN P. DUFFY, Wisconsin             DAVID SCOTT, Georgia
STEVE STIVERS, Ohio                  AL GREEN, Texas
RANDY HULTGREN, Illinois             EMANUEL CLEAVER, Missouri
DENNIS A. ROSS, Florida              GWEN MOORE, Wisconsin
ROBERT PITTENGER, North Carolina     KEITH ELLISON, Minnesota
ANN WAGNER, Missouri                 ED PERLMUTTER, Colorado
ANDY BARR, Kentucky                  JAMES A. HIMES, Connecticut
KEITH J. ROTHFUS, Pennsylvania       BILL FOSTER, Illinois
LUKE MESSER, Indiana                 DANIEL T. KILDEE, Michigan
SCOTT TIPTON, Colorado               JOHN K. DELANEY, Maryland
ROGER WILLIAMS, Texas                KYRSTEN SINEMA, Arizona
BRUCE POLIQUIN, Maine                JOYCE BEATTY, Ohio
MIA LOVE, Utah                       DENNY HECK, Washington
FRENCH HILL, Arkansas                JUAN VARGAS, California
TOM EMMER, Minnesota                 JOSH GOTTHEIMER, New Jersey
LEE M. ZELDIN, New York              VICENTE GONZALEZ, Texas
DAVID A. TROTT, Michigan             CHARLIE CRIST, Florida
BARRY LOUDERMILK, Georgia            RUBEN KIHUEN, Nevada
ALEXANDER X. MOONEY, West Virginia
THOMAS MacARTHUR, New Jersey
WARREN DAVIDSON, Ohio
TED BUDD, North Carolina
DAVID KUSTOFF, Tennessee
CLAUDIA TENNEY, New York
TREY HOLLINGSWORTH, Indiana

                     Shannon McGahn, Staff Director
       Subcommittee on Financial Institutions and Consumer Credit

                 BLAINE LUETKEMEYER, Missouri, Chairman

KEITH J. ROTHFUS, Pennsylvania,      WM. LACY CLAY, Missouri, Ranking 
    Vice Chairman                        Member
EDWARD R. ROYCE, California          CAROLYN B. MALONEY, New York
FRANK D. LUCAS, Oklahoma             GREGORY W. MEEKS, New York
BILL POSEY, Florida                  DAVID SCOTT, Georgia
DENNIS A. ROSS, Florida              NYDIA M. VELAZQUEZ, New York
ROBERT PITTENGER, North Carolina     AL GREEN, Texas
ANDY BARR, Kentucky                  KEITH ELLISON, Minnesota
SCOTT TIPTON, Colorado               MICHAEL E. CAPUANO, Massachusetts
ROGER WILLIAMS, Texas                DENNY HECK, Washington
MIA LOVE, Utah                       GWEN MOORE, Wisconsin
DAVID A. TROTT, Michigan             CHARLIE CRIST, Florida
BARRY LOUDERMILK, Georgia
DAVID KUSTOFF, Tennessee
CLAUDIA TENNEY, New York

                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    September 28, 2018...........................................     1
Appendix:
    September 28, 2018...........................................    31

                               WITNESSES
                       Friday, September 28, 2018

Astrada, Scott B., Director of Federal Advocacy, Center for 
  Responsible Lending............................................     8
Cutler, Aaron, Partner, Hogan Lovells LLP........................     3
Harrison, Dion, Director, Elevate................................     5
Price, T. Michael, President and Chief Financial Officer, First 
  Commonwealth Financial Corporation, on behalf of the 
  Pennsylvania Bankers Association...............................     7
Rubinstein, Stuart, President, Fidelity Wealth Technologies......    10

                                APPENDIX

Prepared statements:
    Astrada, Scott B.............................................    32
    Cutler, Aaron................................................    56
    Harrison, Dion...............................................    83
    Price, T. Michael............................................    90
    Rubinstein, Stuart...........................................   100

              Additional Material Submitted for the Record

Luetkemeyer, Hon. Blaine:
    Letter from Credit Union National Association (CUNA).........   108
    Letter from National Consumer Law Center (NCLC)..............   109


                      EXAMINING OPPORTUNITIES FOR



                  FINANCIAL MARKETS IN THE DIGITAL ERA

                              ----------                              


                       Friday, September 28, 2018

                     U.S. House of Representatives,
                     Subcommittee on Financial Institutions
                                       and Consumer Credit,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 9 a.m., in 
room 2128, Rayburn House Office Building, Hon. Blaine 
Luetkemeyer [chairman of the subcommittee] presiding.
    Present: Representatives Luetkemeyer, Rothfus, Lucas, 
Posey, Pittenger, Barr, Tipton, Trott, Loudermilk, Kustoff, 
Tenney, Hensarling, Clay, and Green.
    Chairman Luetkemeyer. The committee will come to order. 
Without objection, the Chair is authorized to declare a recess 
of the committee at any time. This hearing is entitled, 
``Examining Opportunities for Financial Markets in the Digital 
Era.'' And before we begin, I would like to thank the witnesses 
for their participation today and for appearing before us. 
Hopefully, this will be a little less drama than the hearings 
on both sides of the building yesterday.
    Before we begin, I think that we are going to have some 
great information to discuss today, and I thank you again. And 
so I now recognize myself for 3 minutes for the purposes of 
delivering an opening statement.
    This hearing is in regard to the U.S. Department of 
Treasury report entitled, ``A Financial System That Creates 
Economic Opportunities, Nonbank Financials, Fintech, and 
Innovation.'' Last January, this subcommittee held a hearing to 
examine developments in digital technology. Even since that 
time, the various ways financial services are offered and 
delivered, has changed.
    Today, we continue our quest to examine the fintech 
landscape and approaches to a smart and sufficient regulatory 
regime. This hearing will expand on the recommendations of the 
Treasury report and examine the current landscape, including 
the need to modernize the existing regulatory framework, and 
develop legislative proposals to allow financial services 
entities to deliver new products and services to customers.
    The pace of technological development in financial services 
has increased exponentially and dramatically, offering both 
benefits and potential challenges to the U.S. economy and 
consumers. The reality is that innovation is critical to the 
success of industry and the development of new products. It 
helps to serve consumers' financial needs across the globe, as 
well as potentially reduce operational risks of financial 
institutions.
    As more information becomes digitized, the protection of 
consumer data becomes particularly important. We can't address 
innovation and growth without addressing the security of that 
data. I am glad the Treasury report made that a priority. The 
Department has clearly outlined the need for a single Federal 
data security and notification standard that raises the bar for 
all industries, and ensures a better outcome for all consumers.
    State authorities have attempted to harmonize standards, 
but the results have been stunted. For every State that has 
enacted a tough consumer notification requirement, two others 
have failed to address the issue. Harmonization must be a 
priority.
    Two weeks ago, the Financial Services Committee passed the 
Consumer Information Notification Requirement Act, my bill, 
that would codify data security safeguards, and establish, for 
the first time in history, a mandatory consumer breach 
notification provision for all financial firms. The biggest 
challenge to innovation is regulatory duplication and 
fragmentation. Outdated and problematic regulations need to be 
overhauled, and growth must be monitored, but not necessarily 
slowed.
    We have a very distinguished panel of witnesses before us. 
The committee looks forward to hearing your diverse 
perspectives and appreciates the time you have taken to appear 
today. Thank you for your testimony. As Mr. Clay is not here, 
we will recognize him upon his appearance for an opening 
statement. But I do believe we need to continue, as we do have 
votes scheduled here, I think it is now 11 o'clock.
    So with that, the Chair now recognizes the Vice Chairman, 
the member from Pennsylvania, Mr. Rothfus, for 2 minutes for an 
opening statement.
    Mr. Rothfus. I thank the chairman for yielding and for 
calling today's hearing. Our financial sector has undergone 
significant changes in the past few years. We have witnessed a 
distressing trend of consolidation and closures, driven, in 
part, by overregulation. As a result, some communities have 
lost their local bank, and some communities have lost access to 
services that they previously enjoyed.
    Regulatory reform and technological advances can help the 
financial sector regain its vibrancy. I am encouraged by 
ongoing developments in the fintech space. It is important to 
note, as some of our witnesses will do today, that fintech and 
traditional banking do not need to be adversarial. Bank/fintech 
partnerships are common, and they can help institutions augment 
their services and reach new customers.
    I am encouraged by this Administration's work to ensure 
that nonbank lenders and fintech firms are subjected to clear 
and robust rules, while facilitating continued technological 
progress and allowing for healthy competition. I look forward 
to hearing from our witnesses. And I yield back.
    Chairman Luetkemeyer. The gentleman has yielded back. The 
Ranking Member prefers not to have an opening statement. So 
with that, we will go right to the testimony today. We thank 
all of you for participating.
    Mr. Aaron Cutler, Partner for Hogan Lovells, LLP; Mr. Dion 
Harrison, Director of Elevate; Mr. Michael Price, President and 
Chief Financial Officer, First Commonwealth Financial 
Corporation, on behalf of Pennsylvania Bankers Association. And 
Mr. Rothfus would like to make a special introduction of him.
    Mr. Rothfus. Thank you, Mr. Chairman. Yes, Mr. Price is the 
President and Chief Executive Officer of First Commonwealth 
Financial Corporation in Western Pennsylvania and a constituent 
of mine. He sits on the board of the Pennsylvania Bankers 
Association, and he also serves on the Community Depository 
Institutions Advisory Council of the Cleveland Fed and the 
Business Advisory Council at Indiana University of 
Pennsylvania.
    Mr. Price grew up in Johnstown, Pennsylvania, which is also 
in my district. He earned a degree in finance from the 
University of Utah, and an MBA from Cleveland State University. 
Mr. Price, thank you for testifying today, and I look forward 
to getting your perspectives. I yield back.
    Chairman Luetkemeyer. The next panel member is Mr. Scott 
Astrada, Director of Federal Advocacy, Center for Responsible 
Lending (CRL); and Mr. Stuart Rubinstein, President, Fidelity 
Wealth Technologies.
    Each of you are recognized for 5 minutes to give an oral 
presentation of your testimony. Without objection, each of your 
written statements will be made part of the record. Just a 
little bit on the lighting system. Green means go; yellow means 
you have 1 minute to complete; red means, hopefully, we can 
wrap it up very quickly and stop. We do want to get done by 11 
o'clock, not that this is not an important. We want to make 
sure everybody has a chance to get all their questions asked, 
and make sure all the answers are here. But we do need to make 
this as compact as we can.
    So, with that, again, I indicated to you, please pull the 
microphones close to you. The lady at the end needs to 
transcribe the activities and needs to be able to hear 
everything that happens. As I told you, my wife screamed in 
both ears and I have a hearing deficit problem, so you need to 
pull it close so I can hear. So, we are excited, though, for 
all of you to be here today.
    And, Mr. Cutler, you are recognized for 5 minutes.

                    STATEMENT OF AARON CUTLER

    Mr. Cutler. Thank you, Chairman Luetkemeyer, Ranking Member 
Clay, and members of the subcommittee. My name is Aaron Cutler 
and I am a partner at the law firm of Hogan Lovells. Any 
statements I make reflect only my opinions, and do not 
necessarily reflect the opinions of my law firm, colleagues, or 
clients.
    My full written testimony has been entered into the record, 
and I will now give an overview. At the outset, I would like to 
stress that I support agile and effective regulation that 
enables the creation, development, and deployment of safe, 
sound, and innovative consumer financial products and services.
    Fintech products and services are already in use and 
continue to be rapidly adopted. As noted by the Treasury's 
recent report, up to one-third of U.S. consumers who are online 
use no less than two fintech services. As GAO reported in 2016, 
the U.S. financial services regulatory structure is complex, 
and contains areas of fragmentation of overlap that lead to an 
inefficient regulatory structure.
    Several of the recommendations contained in the Treasury 
report identify areas for improvement and increased 
efficiencies. Overall, the Treasury report is a call to action. 
Taking action on many of the recommendations could improve the 
regulatory framework. These improvements stand to benefit 
fintech entities, the industry at large, and consumers.
    Financial institutions are sitting on a gold mine of 
insightful data about each of their customers' spending habits 
and use of funds. In the right hands, this data can be used to 
promote sound financial management, assess risk, and support 
consumers. It can also help with digital identity, 
verification, or even to make risk assessments for insurance 
products.
    In many cases, however, it is not the financial 
institutions themselves that are best able or motivated to 
carry out this analysis, but innovative third parties with 
greater expertise in data analytics. However, financial 
institutions and data aggregators often find themselves at odds 
over data sharing, this is in part due to the prevailing 
regulatory regime.
    Currently, financial institutions face uncertainty 
regarding their liability for sharing consumer account data. 
The Treasury report recommends that the Bureau confirm that 
third parties given consumer authorized access be covered under 
the definition of consumer under Dodd-Frank for the purpose of 
sharing financial account and transaction data, thereby, 
requiring financial institutions to share the data with these 
third parties.
    In my view, the overriding concern when setting a framework 
for open access to transactional information should be to 
ensure the security of the Count and credentials, facilitate 
the customers' freedom of choice, and to allocate risk and 
liability appropriately to protect the customer. Many fintech 
companies are subject to the authority and supervision of State 
banking departments and other financial services regulatory 
agencies. Under the State regulatory regimes, fintech companies 
are often required to obtain some form of State licensing and 
registration.
    State applications may ask for detailed information about 
the company, key employees, executives, and owners. The 
information requested may also slightly vary between States, 
even though the objective is substantially similar. The 
Treasury report identifies the State oversight and 
harmonization challenges faced by entities offering financial 
services products across multiple States.
    Thus, it recommends creating uniformity to streamline State 
supervision and licensing, such as adopting reciprocity-type 
measures to help reduce redundancies in the licensing and 
registration process. I fully support this recommendation.
    Regulators and industry participants alike will also 
benefit from the information obtained by testing new innovative 
technologies. The purpose of a regulatory sandbox is to create 
an environment for firms to try out new ideas without the 
threat of regulatory penalty. By providing this environment, 
regulators expect to create a range of beneficial outcomes, 
such as reduced time to market for new products and services 
due to firms having greater certainty as to the regulatory 
treatment of those products and services; better access to 
finance for firms seeking to raise funding for their new 
products and services due to investors having greater comfort 
that the business will be viable from operational and 
regulatory perspective; the development of more innovative 
products due to firms having the ability to test ideas and the 
support of regulatory environment; and better outcomes for 
consumers due to the better quality of testing that can be 
applied within a sandbox environment.
    Also, the use of the sandbox enables the regulators to 
provide input on consumer protection features at an earlier 
stage of the product development process. In the U.K., for 
example, the financial conduct authority has established a 
domestic regulatory sandbox, which has been used as a model for 
other sandboxes around the word.
    In conclusion, the Treasury report is a very good start, 
and I commend the Treasury Department on its publication. Thank 
you.
    [The prepared statement of Mr. Cutler can be found on page 
56 of the appendix.]
    Chairman Luetkemeyer. Thank you, Mr. Cutler. Mr. Harrison, 
you are recognized for 5 minutes.

                   STATEMENT OF DION HARRISON

    Mr. Harrison. I want to thank Chairman Luetkemeyer and 
Ranking Member Clay for asking me to appear today to discuss 
opportunities for financial markets in today's digital era.
    My name is Dion Harrison, and I am the Director of Products 
at Elevate. I have over 20 years of experience in the consumer 
credit industry, and now, I am proud to work at Elevate, one of 
the leading fintech companies in the United States. I am proud 
because we work hard to fulfill our mission to serve good 
customers in disadvantaged circumstances today, and provide 
products that help them to have a better tomorrow. We are also 
building consensus around key policy issues through our trade 
groups, Teknek, and the Online Lender Alliance.
    Headquartered in Fort Worth, Texas, and with an office in 
San Diego, we served over 2 million American families through 
the origination of almost $6 billion in nonprime credit to 
date. We are the only fintech company to cap our profits so we 
can reduce costs to consumers. We have lowered our APRs by over 
50 percent since 2013, saving consumers over $4 billion 
compared to payday lenders. And we have a customer centric 
approach to designing and underwriting all of our products.
    As members of this subcommittee know, the U.S. is still 
recovering from the events of 10 years ago, which have 
significantly reduced the credit available to nonprime 
consumers by over $140 billion to date. Banks took a step back 
and small dollar options for consumers evaporated, the 160 
million Americans with credit scores below 700, who we call the 
new middle class. To truly understand the needs of consumers 
affected by these changes, Elevate created a research 
institution called Center for the New Middle Class. The results 
of our research so far has given us key insights.
    African Americans are 80 percent more likely to live 
paycheck to paycheck, they are also 2-1/2 times more likely to 
overdraft their bank account. Hispanic nonprime borrowers are 
more likely to experience higher levels of employment and less 
volatile income, but less than 1 in 10 have a retirement 
account.
    What rings true about our research is that these Americans 
need access to better small dollar loans, and my experience 
tells me that partnerships between fintech companies and banks 
are the key to building safer, more accessible, and inclusive 
financial products. Fintech is already helping consumers by 
increasing short-term credit access, developing payment 
platforms, and helping consumers make better financial 
decisions with new tools.
    To build upon the momentum in our industry, Congress and 
industry stakeholders should come together on the following 
principles: Regulations should be pro-consumer and enable 
innovation. Partnerships between banks and fintech companies 
should be encouraged. Congress should act by passing 
legislation that clarifies and fuels the creation of safe, 
superior products.
    As with any innovation, there will be staunch supporters 
and fierce critics, but I am confident through transparency, 
honesty, and results, Congress will see that leveraging the 
strengths between banks and fintech companies is a powerful and 
positive solution to filling many of the gaps in our financial 
system. Bank/fintech partnerships are a win, win, win. Banks 
are able to offer products to position themselves for the 
future of a rapidly evolving industry.
    Fintech companies like Elevate are able to efficiently 
utilize data and analytics to better design and market safe 
financial products. And consumers get access to credit 
solutions that are quick, safe, and transparent. Consumers are 
also able to escape bank deserts, as Representative Meeks 
recently noted, fintech products can build a truly affordable 
and healthy financial system for everyone.
    Congress should ensure consumers continue to benefit from 
these partnerships. I first want to thank this committee and 
the House for passing a large bipartisan majority, H.R. 3299, 
which clarifies valid-when-made. Similarly, I hope this 
committee will pass H.R. 4439, which clarifies the true lender 
issue.
    Furthermore, we must address the lack of diversity in 
fintech and technology more broadly. As Congressman Cleaver 
recently stated, there are serious ramifications when companies 
don't have a diverse workforce and don't understand or align 
with the communities that they serve.
    We must work hard to hold each other accountable. In our 
business, we use alternative data sources to reach new 
consumers and evaluate the risk drivers and affordability and 
delinquency, but we must remain vigilant that our processes do 
not include bias. And we must all be on the lookout for bad 
actors who intend to create predatory products targeted at not 
just nonprime, but all groups of consumers.
    I want to thank you for inviting me today, and I look 
forward to answering your questions.
    [The prepared statement of Mr. Harrison can be found on 
page 83 of the appendix.]
    Chairman Luetkemeyer. Thank you, Mr. Harrison. Mr. Price, 
you are recognized for 5 minutes.

                  STATEMENT OF T. MICHAEL PRICE

    Mr. Price. Thank you. Chairman Luetkemeyer, Ranking Member 
Clay, and members of the subcommittee, my name is Michael Price 
and I am the Chief Executive Officer of First Commonwealth 
Bank.
    Our community bank is privileged to help thousands of 
consumers and family owned businesses buy homes, pay for 
college, expand facilities, and hire new workers every year. I 
am grateful for the opportunity to participate in this 
important hearing and offer my perspective as a community 
banker.
    In my brief testimony, I want to stress three points: 
First, community banks embrace and support responsible 
innovation within our industry; second, I want to stress the 
vital and visible presence of community banks throughout the 
country; third, I want to emphasize that consumers and small 
businesses are best served when all providers of financial 
products and services are subject to a consistent and level 
regulatory and supervisory playing field.
    First Commonwealth has served as a trusted provider of 
financial services for over a century. We embrace innovation to 
better serve our customers. Financial technologies present 
tremendous opportunities to customers and banks alike. 
Technology empowers consumers to manage their financial health, 
and affords access to credit for more borrowers. We 
continuously invest in technology to provide state-of-the-art 
solutions for mobile banking, mobile wallets, and mobile 
deposit through a financial management application that teaches 
and empowers our customers to budget, save, monitor spending, 
and plan for the future.
    Our innovation occurs within the framework of bank 
regulation and supervision, and a culture of compliance and 
risk management that ensures that all new products are safe and 
secure before they get into a customer's hands. In short, the 
community banks deliver innovative products through channels 
customers can trust. However, technology does not replace a 
community presence.
    While First Commonwealth is embracing technological 
innovation, we remain a visible presence supporting our 
communities, as we always have, through countless hours of 
volunteering, something that cannot happen through a computer 
or mobile device. We understand our customers, and stand behind 
them in good times and bad. We engage with our communities, 
partner with local businesses, and will have the capital and 
wherewithal to lend through the next economic cycle. We make a 
difference.
    My team in Indiana, Pennsylvania serves in leadership roles 
at a local university, hospital, drug treatment facility, high 
school, Chamber of Commerce, United Way, YMCA food bank and 
homeless shelter, just to name a few organizations. Besides our 
time, we also give generously to these local charities and many 
more. We care about the vitality of our communities.
    As a community bank, First Commonwealth is appropriately 
subject to extensive regulation and regular and rigorous 
examinations. We adhere to regulatory guidelines for vendor 
risk management to ensure that service providers have robust 
compliance and information security programs. Nonbanks offering 
similar services do not have the same level of oversight. This 
can allow problems and security vulnerabilities to go 
undetected to the detriment of consumers. As a bank, we are 
regularly examined for fair lending compliance.
    While nonbank lenders may be subject to fair lending laws, 
they are not routinely examined for compliance unless a 
consumer complaint triggers an investigation. I believe 
customers should expect the same reliable experience and 
protections, whether they are dealing with a bank or a nonbank.
    The best way to achieve a consistent customer outcome is 
for regulation, and more appropriately, supervision to be based 
on activity rather than the type of company that conducts the 
activity.
    Many of the innovations at their core are traditional 
banking products offered in new ways. By focusing on the 
activity taking place, regulators are best able to assess the 
risk, being presented to consumers and the system. Activity-
based regulation and supervision would level the playing field 
and ensure that consumers enjoy the same protection of benefits 
across the vast landscape of financial service providers.
    Once again, thank you for the opportunity to offer my 
perspective, and for your attention to the importance of 
responsible innovation in financial services. Thank you very 
much.
    [The prepared statement of Mr. Price can be found on page 
90 of the appendix.]
    Chairman Luetkemeyer. Thank you, Mr. Price. Mr. Astrada, 
you are recognized for 5 minutes.

                  STATEMENT OF SCOTT B. ASTRADA

    Mr. Astrada. Thank you. Good morning Chairman Luetkemeyer, 
Ranking Member Clay, and members of the committee. Thank you 
for inviting me here today to testify about the opportunities 
and challenges posed by fintech in the financial services 
marketplace, the current regulatory and consumer protection 
landscape, and the need to ensure that emerging products and 
market participants best serve consumers.
    I am the Director of Federal advocacy at the Center of 
Responsible Lending, a nonprofit, nonpartisan research and 
policy organization, dedicated to protecting homeownership and 
family wealth, by working to eliminate abusive financial 
practices. CRL is an affiliate of Self-Help, a non-profit 
community development financial institution. In total, Self-
Help has provided over $6 billion in financing to 70,000 home 
buyers, small businesses, and nonprofits. And currently serves 
more than 80,000, mostly low and moderate consumers, through 30 
retail branches.
    This important hearing addresses how technological 
innovation has resulted in the development of new services and 
delivery platforms by both traditional financial institutions 
and nonbank fintech companies. The rapid expansion of market 
participants and their products has brought new opportunities 
as well as significant consumer protection concerns to the 
financial marketplace.
    In my written testimony, I discussed in detail the 
essential legal questions and consumer protection issues that 
are necessary to be at the center of this broader fintech 
dialog. Specifically, in relation to the recent Treasury 
fintech report, CRL, along with numerous civil rights groups 
and State attorneys general, have expressed significant concern 
about the impact that the Treasury report's recommendations 
would have upon consumers.
    We reviewed the report, as we do fintech in general, in the 
context of our central priorities. First, preserving the 
progress made by State and Federal stakeholders to guard 
consumers from predatory debt trap products. Second, ensuring 
fintech lending evolves in cadence with existing and developing 
consumer protection laws. And, third, the preservation of State 
usury laws. CRL is very wary of unscrupulous actors and payday 
lenders adopting the banner of fintech for the purpose of 
evading consumer protection laws, particularly State level rate 
caps, while also using the veil of innovation as a 
justification for exemption from longstanding consumer 
protection laws and regulations.
    Ultimately, there is no getting around the fact that a bad 
loan is a bad loan, regardless of whether it is delivered 
through a technologically advanced medium or algorithm or 
storefront. At that same time, we are well-aware and very 
encouraged by the potential benefits of fintech, especially as 
it relates to affordability and financial inclusion.
    CRL is dedicated to ensuring that consumer marketplaces are 
fair, transparent, and equitable, and we are appreciative of 
the opportunity to contribute to this discussion. While we are 
all admittedly unsure of what fintech can deliver over the long 
term, in terms of financial inclusion, we do know for a fact 
what happens when consumers are left in the cross-hairs of 
predatory lenders.
    Short-term payday loans and car title loans cost borrowers 
$8 billion a year, and many times lead to other significant 
financial challenges, overdraft fees, loss of a checking 
account, debt collection costs, even bankruptcy. The evolving 
fintech marketplace should focus on historically proven 
consumer protection laws and the components of responsible, 
equitable, and wealth building lending. We have a unique 
opportunity with the emergence of fintech to build strong 
consumer protections and equitable financial access at the 
front end of fintech development, and into the very foundation 
of the marketplace itself.
    Furthermore, we have an opportunity to correct and remedy 
the current marketplace inequities that have been systemic by 
ensuring consumer protections is an integral part of the 
financial marketplace. If we get this wrong, we will set the 
stage for future generations to suffer from the same financial 
inequities of the past. However, if we do this right, we could 
set a trajectory for millions of Americans toward economic 
prosperity.
    Thank you again for the opportunity to testify, and I look 
forward to answering your questions.
    [The prepared statement of Mr. Astrada can be found on page 
32 of the appendix.]
    Chairman Luetkemeyer. Thank you, Mr. Astrada. Mr. 
Rubinstein, you have a really high bar to hit here because 
every one of those guys came in under the 5 minutes.
    Mr. Rubinstein. Thank you.
    Chairman Luetkemeyer. You are recognized for 5 minutes, 
sir.

                 STATEMENT OF STUART RUBINSTEIN

    Mr. Rubinstein. Thank you, Chairman Luetkemeyer, Ranking 
Member Clay, and members of the subcommittee. My name is Stuart 
Rubinstein, I am President of Fidelity Wealth Technologies and 
head of data aggregation at Fidelity Investments. Fidelity is a 
leading provider of investment management, retirement planning, 
brokerage, and other financial services to more than 30 million 
individuals, institutions, and intermediaries, with more than 
$7 trillion in assets under administration. We are also strong 
supporters of fintech and a major fintech investor.
    I am appearing today to represent Fidelity with a specific 
focus on the topic of financial data aggregation. At Fidelity, 
we have a unique perspective: We are an aggregator ourselves, 
and we are also a source of data to aggregators who act on 
behalf of our customers.
    Fidelity is a strong believer in the benefits our customers 
receive when they can see a consolidated picture of their 
finances. We have offered aggregation services to our customers 
for well over a decade, and our customers have been able to 
access their Fidelity data through various third parties since 
the 1990's. But the cybersecurity environment has changed, and 
risks have become far more pronounced and must be addressed.
    First, most financial data aggregation that occurs today 
requires consumers to disclose their financial institution, 
user name and password, to the third party aggregator or 
fintech. While this process may have worked in the past, there 
are new technologies that eliminate any such requirement. 
Because cybersecurity is of paramount importance, we believe 
that customers should not have to disclose their user name and 
password in order to use any third party service.
    Second, aggregators using credentials may have access to an 
entire website or mobile app, which means they can access more 
data than may be necessary to provide their services. For 
example, a simple app that tracks your spending does not need 
to know your investment holdings, but it will have access to 
that under the current methods. Because of the advancement of 
cyber threats, Fidelity and others in the industry having been 
working hard on developing a different approach to data 
aggregation that helps to protect consumers. At Fidelity, we 
have developed five principles for empowering consumers to 
share their data safely with third parties:
    One, consumers should be able to access their financial 
account data wherever they want, when they want it, and through 
third parties. The question is not if they can access their 
data, but how; two, access must be provided in a safe, secure, 
and transparent manner; three, consumers should provide 
affirmative consent and directly instruct their financial 
institutions to share their data with specific third parties; 
four, third parties should access only the financial data that 
they need to provide their services. This should not be a 
Trojan horse for the gathering, accumulating, and reselling of 
consumer data; and fifth, consumers should be able to monitor 
account access rights and direct financial institutions to 
revoke that access.
    To back these principles with action, Fidelity announced in 
November 2017, a new service called Fidelity Access. Fidelity 
Access will allow customers to provide third-party access to 
their customer data through a secure connection, and without 
providing log-in credentials to any third party. The most 
difficult issues standing in the way of wider adoption of safer 
data sharing technologies is the issue of responsibility. We 
believe companies that collect and handle financial data should 
be responsible for protecting that data and making consumers 
whole if misuse, fraud, or theft occurs.
    As we have been discussing Fidelity Access, we have seen 
aggregators try to limit liability, some to very small dollar 
amounts. Fidelity believes firms that obtain and handle 
consumer data should be held responsible to protect that data 
from unauthorized use, just as we are. Any other standard 
creates moral hazard and does not require aggregators to take 
their data stewardship responsibilities seriously.
    Finally, the complexity of 50 different State laws to 
notify a consumer of data breach is significant. We are 
encouraged by the committee's recent consideration of 
legislation to create a single Federal data breach notification 
standard. Consumers could benefit from a uniform Federal 
standard that requires clear and timely notification of a 
material breach of personal information.
    Thank you again for the opportunity to testify before you 
today. I look toward to answering your questions.
    [The prepared statement of Mr. Rubinstein can be found on 
page 100 of the appendix.]
    Chairman Luetkemeyer. Thank you, Mr. Rubinstein, well done. 
The Chair now recognizes himself for 5 minutes to begin the 
questioning.
    Mr. Cutler, you have written extensively on the growing 
fintech marketplace and what the challenges are and innovation. 
I know you talked a little bit about the regulatory sandbox. 
How do you believe that it is best structured? Is it to allow 
the fintech company before it is chartered, after it is 
chartered, whenever it becomes a part of a bank or credit union 
or other entity, or should you just allow the fintech company, 
before it ever becomes affiliated, to be in the sandbox to 
develop its products? Can you just elaborate, please?
    Mr. Cutler. Thank you, Mr. Chairman. Actually, I think 
before they become a fintech, before they get their charter 
would be a good place to allow them to enter the regulatory 
sandbox early on in that process, as they are trying to figure 
out where they should go, should they enter into a partnership. 
As they are figuring it out, it would be good if they could be 
part of that sandbox.
    Chairman Luetkemeyer. I would assume that company would 
have to show that it is viable to be able to be doing something 
like that. You can't just have somebody come in with an idea 
and a whim and be able to get a safe harbor here to go and 
develop a product--would that be--
    Mr. Cutler. Absolutely, they would have to open the kimono 
with the regulators at that point and have that conversation.
    Chairman Luetkemeyer. Very good. Mr. Price, you talked a 
little bit about some of your fintech activities, and last 
night I met one of Mr. Barr's constituents, who is a banker 
from Lexington, and they were using tellers at kiosks. Instead 
of a real teller, it was a teller who was technologically 
behind the screen somewhere and they were able to talk to him 
on another screen in the lobby. So they didn't really have any 
physical people in the lobby, but they had some physical people 
actually doing all of this.
    Have you done some research to see--I guess I am curious 
about the numbers, what people would be interested in this? 
Last night the banker was adamant about they did the research 
to show this is something people wanted, but I saw some numbers 
recently that indicated, even the millennials, only 6 percent 
of the people didn't want to touch somebody, 51 percent of them 
did want to touch somebody, they wanted to be able at some 
point be able to go to a teller and be able to talk across the 
counter. What numbers can you talk to us about this morning?
    Mr. Price. Thank you, Mr. Chairman. The number I recently 
saw actually 2 days ago from an industry expert was 46 percent 
of people still go in the branch, and then now 54 percent do 
things totally digitally. And when they have a problem, they 
still want to get somebody by the throat or hold their feet to 
the fire and get in front of us at the branch. But those are 
the basic numbers. And I have to tell you, I think Congressman 
Rothfus said, this is an adversarial, it really isn't. We have 
mobile wallets. We have online lending. We have the same kinds 
of--the kiosk idea, we think about our customers, interface 
digitally, those of the types of things we are exploring as we 
speak. Umpqua just in the last week came out with a concept, 
Best Banker Forever, where you are interacting with a person 
mobily.
    So these--the fintech companies have really pushed the 
space, and I think will make it terrific for clients, and we 
look for all kinds of opportunities to partner with them, and, 
in fact, we are already doing that.
    Chairman Luetkemeyer. I assume there needs to be some 
structure in place to be able make sure this is done. Now, Mr. 
Rubinstein made some great points here with regards aggregating 
data and access for people to their data, but also trying to 
find a way to protect that data. There is a line you have to 
walk here.
    Mr. Price. There is. And I would just say, a bank charter 
is a bank charter. No bank-like charters, regulatory oversight 
exams, if you are engaged in banking activity, and that 
includes the full enchilada, things like CRA (Community 
Reinvestment Act), HMDA (Home Mortgage Disclosure Act), fair 
lending. And not just laws, but also you have to have 
supervision. When the examiner comes in and takes 40 or 50 of 
my loans and grades them, that is a different bar than if 
somebody sues me civilly, because I am accountable quarterly 
for exams and exam outcomes.
    Chairman Luetkemeyer. Mr. Rubinstein, would you like to 
comment on that last comment? Elaborate on your testimony?
    Mr. Rubinstein. Very simply, different firms have consumer 
data, and right now are held to different standards. We have 
banking standards, the SEC has standards on firms like us. 
Fintech firms are able to use that data and provide very 
helpful services, but they are not subject to the same 
standards. And I think that is--at the end of the day, it is 
important to have a level playing field. But I don't believe 
the consumer understands the difference if one firm holds the 
data or another firm does, we just want to make sure we have 
those same protections.
    Chairman Luetkemeyer. Thank you. My time has expired. And 
with that we go to the gentleman from Missouri, the other 
gentleman from Missouri, Mr. Clay is recognized for 5 minutes.
    Mr. Clay. Thank you, Mr. Chairman. And let me thank the 
panel for their participation in this hearing. I will start 
with Mr. Astrada. I see that the Center for Responsible Lending 
was listed in Treasury's fintech report as being an 
organization the Department consulted with. Can you please 
share with us how your meetings with the Department went, and 
did they take your advice?
    Mr. Astrada. Thank you, I am more than happy to share. I 
will start that we did not actually meet with Treasury, despite 
being listed in the appendix. To be as forthcoming with the 
committee as possible, the process was earlier this year, 
Treasury staff reached out to us to come in and talk about the 
report, and I was the designated lead. I responded and said we 
would love to come in and talk, as we usually do. I did not 
receive a response to that email. I followed up a few weeks 
later and did not receive a response to that email, and 
followed up one last time a month after that, and did not 
receive a response.
    So we were quite surprised to be listed in the appendix. We 
assumed the best, in that it was a technology oversight.
    Mr. Clay. I wouldn't go that far, but I am sure that is 
something Treasury can answer for us. Let me ask you, what are 
your views on creating some regulatory sandbox for fintech? Are 
there certain aspects of the fintech landscape that would be 
better suited for such a sandbox? And what parameters would you 
place on a sandbox?
    Mr. Astrada. That is a great question. And I will zoom out 
from the consumer experience aspect of it in terms of the 
terminals and branches and talk the policy and process aspects 
and our concerns with that. On a broad level, it really is a 
bad deal for consumers. It is trading well-established, long-
established consumer protection laws, especially as it comes to 
civil rights and anti-discrimination for the promise of 
innovation for the broader society.
    I think one of our, just initial issues is innovation is 
one of those terms that if you ask 10 people what it means, you 
get 11 answers. And that can be really stretched, either from a 
product level or even nefariously in terms of delivering 
predatory loans through new technological platforms is not 
innovation, and is not deserving of any exemption, in fact, 
quite the opposite. And I think the process of cutting out 
stakeholders, consumer groups, civil rights groups, not going 
through notice and comment, not going through the well-
established APA procedures, to, again, double-down on this 
notion of a very vague conception of innovation is very 
problematic.
    And on the consumer level, if you really talk about the 
permanency of some of the negative impacts that can follow 
individuals their whole lives, if not generations, you might 
have a great exit plan in a business if it fails, but what 
about those consumers? And the only thing that comes to mind is 
an Atlantic article from earlier this year, based on an MIT 
study, that says, To escape poverty, on average, you need 20 
years for nothing to go wrong. No medical emergency, no job 
loss. That is a crazy amount of time.
    And if you talk about regulatory sandbox, especially in 
financial inclusion, you set up for a tradeoff between well-
established civil rights laws for this promise of innovation 
that is not even strictly defined, and the consequences can 
follow individuals for their whole lives.
    Mr. Clay. And just as a follow up to Mr. Harrison. How does 
Elevate protect against unintentional discriminatory practices?
    Mr. Harrison. So, thank you, Congressman Clay, for that 
question. Elevate is very focused on making sure that we 
protect our customers in every way. And we have leveraged a lot 
of different types of data in order to more broadly serve 
customers that are in disadvantaged areas. And, in fact, we 
take it very seriously to make sure that we are in compliance 
with regulations also. We are subject to, with our bank 
partnerships, we are subject to the same regulations that all 
of our banking institutions are. And we do internal reviews 
ourselves so that we can make sure we are monitoring and 
checking ourselves for our fair lending practices, but we also 
get third party validation of all of those. Those are 
independent reviews that we do on a very regular basis to make 
sure that we are in compliance with those.
    Mr. Clay. And the brick and mortar banking industry?
    Mr. Harrison. Yes, sir. And we absolutely, whenever we 
partner with a banking partner, we adopt their policies on fair 
lending and such, so that we are always subject to those 
regulations, and we hold ourselves accountable to that. And we 
provide our reporting of the independent audits, and they have 
the rights to come in and audit us as well to make sure we are 
in compliance with all of those policies.
    Mr. Clay. I am sorry, Mr. Chairman, I went over.
    Chairman Luetkemeyer. That was a great question. Thank you. 
Thank you for that. The gentleman's time has expired. With 
that, we go to the gentleman from Pennsylvania, the Vice Chair 
of the committee, Mr. Rothfus, for 5 minutes.
    Mr. Rothfus. Thank you, Mr. Chairman. Mr. Price, I want to 
talk a little bit about something you said in your testimony 
about the importance of having a community presence. As we see 
the ongoing evolution in society, things moving digitally and 
people liking the convenience of that, here is this issue of 
the presence in the community. What do you mean by that?
    Mr. Price. I think we can have the best of both worlds, 
digital--and I think community and banks should thrive in their 
communities. I think it is important we know our borrowers, our 
businesses. We are the number two SBA lender in western 
Pennsylvania, as a relatively small bank, because we are in the 
towns and we know the people and we are connected in the 
communities.
    There are a lot of projects that happen in a community that 
wouldn't happen without that knowledge in a community. For 
example, we just did a drug and alcohol facility in a small 
town. We raised the money with local businessmen as seed money. 
We encouraged, coached, and counseled the leadership team. Two 
community banks came together to fund that enterprise; it's 
been up 2 years, it is very successful. It was coordinated with 
the public sector, public officials, businesses, healthcare.
    Those are the kinds of things that happen with hospitals 
and retirement facilities that community banks and banks and 
others are at the vortex of, I just think are really important, 
and make a difference in the economic vitality and the growth 
of those places, and their livability. And I am proud to say 
that we do that. And it is fun, too.
    Mr. Rothfus. You also talked about bank/fintech 
partnerships and the mutually beneficial relationships that 
traditional banks and startups can develop. Can you describe 
some of the partnerships that First Commonwealth has with 
fintech companies today?
    Mr. Price. Yes, we do a lot, quite frankly, through our 
core technology provider who forges those partnerships on our 
behalf. Bigger banks buy fintech companies, smaller banks 
necessarily can't, but we can still have access to them through 
our core provider, and there are three or four large core 
providers.
    Mr. Rothfus. So you don't see an option for a bank of your 
size to purchase a fintech company?
    Mr. Price. No. And that puts us a little bit behind the 
starting line, there is no doubt.
    Mr. Rothfus. Mr. Harrison, in your testimony, you 
encouraged partnerships between banks and fintech companies. 
How do these partnerships help the firms serve more consumers?
    Mr. Harrison. Thank you, Congressman, for that question. I 
think in the case of Elevate, we have spent the last decade 
ensembling lots of different types of data to make sure that we 
can reach a broader group of customers. Traditionally there are 
customers, such as Experian and Clarity that have actually 
partnered together to make sure that they understand where 
customers are actually spending their money or borrowing money 
from. And we can take that information and get a more holistic 
view of where our customers are actually lending or getting 
money from.
    We then take that information and we provide it to banking 
institutions to show them that there is a different way of 
actually underwriting, there is a different way of reaching 
those customers, and that there are people that are actually 
invisible to the mainstream credit profiles today that 
absolutely are disenfranchised and live in banking deserts and 
that can't reach a community banking institution that we can 
start to find for them.
    Mr. Rothfus. If we can follow up on that because I know the 
Ranking Member was bringing this issue of reaching out and 
serving those under-banked minority communities. I want to talk 
a little bit about the how. How can this work? How can fintech 
help to provide services to more minority borrowers who are 
currently under-banked? How does that process go?
    Mr. Harrison. I think Mr. Price actually hit the nail on 
the head that the community banking institutions are still a 
trusted entity within their community, and I think that we 
would like to--
    Mr. Rothfus. But if there is a community that doesn't have 
an institution?
    Mr. Harrison. Yes. That is absolutely correct.
    Mr. Rothfus. How can that be leveraged to reach those 
folks?
    Mr. Harrison. Through our technology platforms. They do a 
lot of online platforms that allow customers to find us over 
the internet, and we have been able to reach a number of 
different customers that do live in areas that are typically 
considered to be geographically bank deserts. We are going into 
those communities that, probably more predominantly, have 
check-cashers and payday lenders in their community, and we can 
take them away from those because we can provide a better 
alternative solution and a much more cost effective and safe 
product for them.
    Mr. Rothfus. Thank you. I yield back.
    Chairman Luetkemeyer. The gentleman yields back. With that, 
we go to the gentleman from Texas, Mr. Green, who is recognized 
for 5 minutes.
    Mr. Green. Thank you, Mr. Chairman. I thank the witnesses 
for appearing as well. If I may, I would like to start with the 
notion that the OCC (Office of the Comptroller of the Currency) 
may be accepting applications for a fintech special purpose 
national bank charter. And I am concerned about this because, 
obviously, there may be some predators out there who can see 
opportunities. I am also concerned about how this will impact 
the CRA.
    As you know, there are moves afoot to revise, reform, 
somehow amend the CRA. So let me start with you, Mr. Astrada, 
would you kindly give me some indication as to the concerns 
with predatory lending as well as the impact on the CRA? And I 
am going to give you about 2 minutes to do it because I have 
another question.
    Mr. Astrada. Thank you. I will be quick. Thank you for that 
question. And the OCC fintech charter really is a big concern 
of ours in terms of the written testimony I submitted, and the 
preemption of State usury caps is one of the best protections 
we have seen against predatory lenders. And I think what we 
have to step back and realize is that 10 years ago it was a 
research question that payday loans were bad. That is no longer 
an argument. That is settled. And I think it is settled in 
academia, it is settled on wide slots of the industry.
    What happened, that evolved with fintech into high cost 
lenders migrating to online saying, Well, we are not payday 
lenders, we are different. Or simply relying on a consumer 
choice theory that individuals should be free to choose 
whatever they want. CRL has serious issues with both of these, 
and I will spend time on the former, is that the bank 
partnership model is not what we are here to argue about. What 
we are here to argue about is explicit preemption of State 
interest rates across the whole country that has shown--a model 
that has shown--
    Mr. Green. One minute left.
    Mr. Astrada. You can't separate substance from form. So 
this bank partnership, for decades, has shown a propensity to 
be taken advantage of by unscrupulous lenders. Even more so in 
the fintech space. Under previous regulators, it was shut down 
in the 2000's, but we have seen this spring up again and again 
with many lenders, and this is an unequivocal loophole for 
these lenders to hijack whatever the explicit intention of the 
OCC is to provide financial inclusion. Without addressing the 
State preemption issue--without addressing the reality that 
this partnership model has clear openings for predatory loans, 
it is ill-advised and we strongly opposed the move.
    Mr. Green. The CRA, quickly.
    Mr. Astrada. CRA, I think, is directly related to this in 
terms of using financial innovation as a narrative to say why 
CRA is broken. It is not. It has continued to be one of the 
main drivers of equity. It can be a straightforward update when 
you talk about innovation of product delivery rather than 
product itself.
    So what I mean by that is that creating some type of 
national market with no assessment zones and decoupling the 
fundamental connection of race and the point of CRA, which is 
well-established in the legislative history, you turn the CRA 
into some market base incentive plan instead of an 
accountability law of civil rights and inclusion of what it was 
meant to be. I think some of the proposals coming from the 
comptroller fundamentally move very far away from what CRA was 
intended, under a narrative of the need for fintech innovation.
    Mr. Green. Thank you very much. Mr. Rubinstein let's talk 
about data protection, and I am concerned about data protection 
from hackers as well as attackers. The hackers are the folk who 
would want to have some personal gain as a result of their 
dirty deeds. But the attackers can be nation states who want to 
disrupt economies, who want to sow the seeds of discord within 
a society.
    So the question for you is, how do we protect ourselves 
from hackers as well as attackers, given that we have had some 
unfortunate circumstances with voting in the United States, 
questions about Russian intrusion into an election? Help me, 
please. You only have 20 seconds to do it, I apologize.
    Mr. Rubinstein. Congressman, that is a big question that we 
work on every day. At Fidelity, we employ every modern 
technique we can. Plus, we have a group focused on emerging 
techniques, but we do fight off hackers and attackers on a 
regular basis. Our job is protecting those assets, which is why 
we are so concerned about other firms that have access to 
things like IDs and passwords, or access to the customers--
access to their site, that we need to protect against every 
different type of attack. We can certainly follow up with you 
afterwards.
    Mr. Green. Thank you very much. Thank you for the extra 18 
seconds, Mr. Chairman.
    Chairman Luetkemeyer. Thank you, gentlemen. Your time is 
expired. With that, we go to the gentleman from Kentucky, Mr. 
Barr, you are recognized for 5 minutes.
    Mr. Barr. Thank you, Mr. Chairman. Mr. Harrison, I wanted 
to ask you a little bit more about how fintech partners with 
community banks and in rural Kentucky, we have a lot of 
community banks, but maybe not as much fintech. But explain a 
little bit more how fintech companies can expand access to 
financial services in rural America?
    Mr. Harrison. Thank you for the question, Congressman Barr. 
I believe Elevate, in particular, has a unique way of actually 
approaching our customers to evaluate what the actual need is, 
and we would love to be able to partner with more community 
banks to design different types of products. I think that our 
prowess in technology, coupled with the high-tech environment 
and the really more intuitive understanding of the customer 
from the community banking institutions will help to marry 
together much more efficient and much safer and more relevant 
products that can actually help us to reach broader communities 
also.
    Mr. Barr. We continue to hear that the Modernizing Credit 
Opportunities Act, the true lender solution, and the valid-
when-made legislation, are critical in terms of removing the 
impediments to expanding and amplifying the fintech community 
bank relationships. Can you explain--and, obviously, we 
recognize that the Treasury Department has made those 
recommendations to get those solutions into permanent law. Can 
you explain to me how those solutions would expand access to 
more services and products?
    Mr. Harrison. Absolutely. I think that community banks in 
general have been hesitant to engage completely with a lot of 
fintech companies because of the lack of regulatory clarity. I 
think with that type of clarity and continuous to have 
conversation and dialog around those regulations that fintech 
companies will absolutely step up to the plate and make sure 
that we are in compliance with all of those and make sure that 
we assist the banking in keeping their good rapport with the 
bank examiners and the regulators as well.
    Mr. Barr. Mr. Price, can you comment on the question, tell 
us why the true lender and the valid-when-made, the solutions, 
would be helpful, or how would that change the landscape?
    Mr. Price. Thank you for the question, Congressman. I think 
what fintechs can bring to the table sometimes is edges of 
innovation in ways of doing things. Now, those things have to 
prove themselves out through the next cycle, and I have been 
through three or four of those. I am sure they are mindful of 
that. But I struggle sometimes, we, probably 3 or 4 years ago, 
we met with probably the top five alternative lenders in the 
company, and they weren't that interested in talking to us. 
They came back to us a few years later very interested in using 
our balance sheet, but they still own the customer.
    So what we have done, quite frankly, is we have developed 
our own online lending capability and deposit gathering 
capability. We will continue, and I am sure we will have some 
partnerships, we certainly have it with fintech companies in 
other disciplines, whether it is personal financial management 
tools, et cetera, but lending, we just haven't struck a cord 
yet.
    Mr. Barr. On this question of greater harmonization and 
uniformity, can--Mr. Astrada, I was struggling a little bit 
with your testimony. Can you explain why you are so averse to 
better harmonization and uniformity?
    Mr. Astrada. Yes, it is not so much that we are opposed as 
the legislative affect that this would have on consumer 
lending. I think taking an expansive view of predatory lending, 
the difference between getting an 800 percent APR loan and a 90 
percent APR loan nominally is a plus. But when you look at the 
consumer protection issues of State preemption, when you look 
at, no matter whether you default in a 90 percent loan or a 100 
percent loan or a 300 percent loan, the impacts of that default 
are real. So it is a question of affordability. It is a 
question of ability to repay and it is a question of 
underwriting.
    So what these bills would do on the true lender aspect 
would be ignore what seems to be called friction in the 
industry as a legal tool to root out sham lending.
    Mr. Barr. If we did an OCC charter, it would be optional. 
In other words, it wouldn't be a mandatory preemption, it would 
be optional, to access a Federal uniform interstate 
harmonization. So it wouldn't necessarily preempt State 
consumer protection laws?
    Mr. Astrada. Oh, I thought you were referring to the valid-
when-made in true lender bills, not the OCC charter. That is a 
semantic difference for us, but a real one. But I think the 
legal theory behind the true lender bill would ignore economic 
reality in favor of fiction of just who is on the dotted line, 
and that comes at the expense of a legal tool that has 
historically been very effective in rooting out sham 
partnerships. On the valid-when-made aspect, I think the legal 
theories that the bill relies on, and I borrow this analysis 
from Professor Adam Leviton, is incorrect, that there is no 
longstanding valid-when-made doctrine. The National Bank Act 
wasn't passed until 1864. That in his research, he found no 
cases that deal with these various assignments until the late 
20th century. So the Nichols case that the bill relies upon, I 
think, is an overreach in terms of the conclusion of defining 
the problem that the bill seeks to solve, and the consumer 
impact reality of what that bill would do would, one, rob the 
legal system of calling out and investigating sham 
partnerships, and on the valid-when-made, create a great 
benefit for secondary market securitization, but at the cost of 
unaffordable lenders taking a very expansive view of what 
predatory loans are for the consumer. Sorry for going over.
    Chairman Luetkemeyer. The gentleman's time has expired. 
With that, we go to the gentlelady from New York, Ms. Tenney, 
is recognized for 5 minutes.
    Ms. Tenney. Thank you, Mr. Chairman. I thank the panel for 
being here today, it is an interesting topic. I first wanted to 
address my questions to Mr. Harrison. You mentioned the term 
``banking deserts,'' and I represent central New York, upstate 
New York, and we have a lot of bank deserts. I have an entire 
town that doesn't even have a bank, they have to go to an ATM. 
We have a lot of small community banks that have been lost, a 
couple have been preserved, especially thanks to the latest 
reform that we did to give them a little bit of a break on a 
number of issues, especially the Dodd-Frank reform bill that we 
recently passed, 2155. But we still have an issue where--I met 
with a number of the community banks, and they were concerned--
when they talk about fintech--they are concerned that there is 
somehow a person behind a computer and they don't really know 
the face or the name. I am curious about the possibility, and I 
am open-minded about the possibility. If you could just explain 
a little bit about the rural maybe--and possibly even in urban 
areas, although I have smaller urban areas--how fintech can 
partner in a way with community banks that is transparent, that 
gives people the confidence they have in their hometown 
community bank. If you can just give me a quick way that you 
think, maybe 1, 2, 3, what the best ways you can do that are?
    Mr. Harrison. Sure. Thank you for the question. I think 
that where we can enable different types of technology to reach 
customers in those rural areas is really by using online 
resources, and being able to partner with the banking 
institutions in community areas to find out how do we get to 
those customers? I think that we have been able to really go 
into communities that are, again, predominantly with payday 
lenders, and we have been able to bring those customers back 
away from there and understand that they can access a lending 
platform through their mobile phone over the internet in a lot 
of different ways and be able to get fast decisions that they 
don't have to wait for long periods of time in order to know 
when they have been approved or not.
    We have been able to save customers over $4 billion as an 
alternative payday product. We believe that we can get even 
better than that as we continue to reach out to those 
customers.
    Ms. Tenney. Yes. Can you just get a little more specific? 
You say we can get to the customers. How do you actually get to 
the customers, because these are presumably the bank's 
customers?
    Mr. Harrison. They are.
    Ms. Tenney. How do you work with the bank and partner with 
them so they don't lose their customer base, so they are not 
obliterated by some of these huge banks that come in and, they 
are on an 800 number--my bank, I can walk in--it is a lovely 
little community bank, it has been around for over 100 years. I 
can still walk in and hand my checkbook to the note teller, and 
she balances my checkbook while I go and talk to the bank 
president. It is that close community feel that I know that I 
can trust them. But what do you actually do? Do you partner 
with the bank to reach the customers?
    Mr. Harrison. Yes.
    Ms. Tenney. What is your marketing plan to get to them?
    Mr. Harrison. So we have talked to bank presidents that 
have actually told you us, I have customers that have a 
checking account with me that have a 500 FICO score, but they 
don't qualify for any lending product that I have because the 
lowest that I can go is 700 for their lending products.
    What we have been able to do is talk to them about what is 
the actual need. A lot of times, they will tell us that they 
are short-term loan products, which is within our wheelhouse to 
do. So we will absolutely partner with them to market to them 
through either direct mail, or we can actually create programs 
that market directly through the banking institution itself.
    Ms. Tenney. So how do you actually provide the service? It 
is like a service for the bank in the partnership? So you would 
say, we are going to provide you some--save you cost to the 
bank, for example, a small community bank on online--how do you 
partner with them in a regulatory environment, like say, New 
York, where it is very difficult to do anything, let alone 
partner as an outside company, an outside financial institution 
trying to work within maybe a community bank atmosphere to help 
them with their online presence? I don't mean to get into the 
details too much, but how do you share profits? How do you make 
a decision about whether a loan is going to be made or not? 
Does the community bank make that? Who bears the liability? 
Does the fintech company bear the liability, or does the small 
community bank?
    Mr. Harrison. The bank is always absolutely the lender in 
these business ventures, and we are simply a service provider 
to them. We help to enable them to do this outreach to their 
customers through a lot of different channels. We look at what 
they are currently doing, and then we talk to them about what 
are the ways that we can more cost effectively outreach to 
those customers. We have a lot of infrastructure ourselves. We 
are a huge direct mail marketer--
    Ms. Tenney. Do you have any of these partnerships with 
community banks right now?
    Mr. Harrison. Yes, we do.
    Ms. Tenney. You do?
    Mr. Harrison. Yes. We have a couple of bank partnerships, 
one in Provo, Utah, one is Louisville, Kentucky, where we have 
partnered with the community banks to actually help them to 
enable a national product.
    Ms. Tenney. Thank you very much, appreciate it. I think I 
am out of time. Thanks so much.
    Mr. Harrison. Thank you.
    Chairman Luetkemeyer. The gentlelady's time has expired. 
With that, we go to the gentleman from Georgia, Mr. Loudermilk.
    Mr. Loudermilk. Thank you very much, Mr. Chairman. I thank 
everyone on the panel for being here today. Look, as spending 
over 20 years in the technology sector, finding ways to use 
technology effectively, efficiently, and securely, to improve 
our quality of life, to improve efficiency in business is 
extremely important to me. Fintech is also extremely in my 
district. Georgia is a home of fintech where 70 percent of our 
Nation's payment processing is done. We are also considered the 
Silicon Valley of the south, a lot of startup businesses 
beginning in Georgia. Our legislature--working with our 
legislature to make sure that we are doing the right things to 
keep those businesses in Georgia as well. I am very excited 
about a lot of what we are doing.
    But from a cybersecurity aspect, I do have some concerns. 
That is one thing we have been working on as a committee is the 
patchwork of standards that we have currently regarding data 
security, protecting personal privacy, et cetera. Our committee 
just passed a bill of couple weeks ago that would help with 
that.
    So my questions are going to be around this area, as far as 
a regulatory area regarding cybersecurity, et cetera. First 
question, Mr. Price, why is it so important for consumers in 
different States to have the same expectations and data 
security standards that their bank or credit union must adhere 
to?
    Mr. Price. I think because lending people money or taking 
deposits is serious business. A new house, an education, a car, 
these are seminal moments in people's lives, and these 
decisions demand people's attention and a lot of carefulness 
and thoughtfulness on our part as well.
    The other thing I would add is, as a bank, we are subject 
to something called FFIEC (Federal Financial Institutions 
Examination Council) guidance, it is part of the regulatory 
standard, it is four or five standards, it includes everything 
from tabletop exercises, ethical hacking, phishing exercises, 
are all part of evolving our defense continually when it comes 
to securing data and protecting customers. I do think the 
standard is higher for community banks than it is for our 
fintech partners. I think they have more of a reactive 
regulatory framework with FTC in a safeguard-type of approach. 
My comments earlier were I think the playing field should be 
level, and I think that is fair.
    Mr. Loudermilk. To follow up on that, what are the 
compliance challenges that the industry faces with the 
patchwork of sometimes conflicting data security and breach 
notification laws?
    Mr. Price. I can't speak specifically to that other than to 
say, in general, we have gone from 14,000 to about 6,000 
community banks. That is not the answer to banking deserts. I 
think regulation has--the bar has been raised. We got some 
recent relief--thank you--but I think the regulation needs to 
be consistent, from fintech to bank to big bank, community 
bank, and appropriately tailored, if you will.
    Mr. Loudermilk. OK. I appreciate that. I have had some in 
the financial services sector come to me and complain that if I 
am in compliance in one area I am out of compliance in another, 
just because of the conflicting nature of these. So I 
appreciate that.
    Mr. Rubinstein, I understand your company is developing 
innovative new ways to protect your customers' data when they 
use third-party data aggregators by eliminating the need to 
copy usernames and passwords onto third-party platform. Can you 
just elaborate how that works?
    Mr. Rubinstein. Yes, Congressman, thank you. It is not only 
our company. The industry is moving in this direction. So data 
sharing has been going on since the mid 1990's. The 
cybersecurity environment, as we all know, has changed 
dramatically. So what we are doing is we are working with 
fintechs, with aggregators, and with banks and brokerage firms, 
platform providers, the core providers that Mr. Price 
referenced, in ways for consumers to actually affirmatively 
instruct their institutions.
    So basically log into their institution and say yes, please 
share my data with this third party. So they go through the 
authentication not with the fintech, but they go through it 
with their institution. What that does is that permits their 
institution, one, to set up a secure connection; two, to help 
the consumer monitor that on an ongoing basis so the consumer 
doesn't use an app and forget, meanwhile the data is still 
being harvested; and third, it provides a way for the consumer 
to go to the institution and say, I don't want to use it 
anymore, and revoke that consent.
    Mr. Loudermilk. OK. Thank you. This is the type of 
innovative thinking that is very beneficial to the industry.
    Mr. Chairman, thank you for the time and I yield back.
    Chairman Luetkemeyer. The gentleman's time has expired.
    Now we go to the gentleman from Colorado. Mr. Tipton is 
recognized for 5 minutes.
    Mr. Tipton. Thank you, Mr. Chairman. I apologize. I was 
running late. I had another meeting to be able to be at.
    But, Mr. Harrison, I wanted to address you maybe first. I 
represent rural Colorado. I have a lot of small communities, a 
lot of underbanked communities and a lot of innovations. To 
make sure that we have a fair and level playing field for these 
rural communities and the underbanked to be able to participate 
is incredibly important for us.
    Can you maybe expand for me at least how your business--why 
you deal with the banks and how this is going to be benefiting 
some of these rural communities, why that is important?
    Mr. Harrison. Sure. Thank you for the question, Congressman 
Tipton. Again, I believe that our partnerships with banks give 
us a better insight to what consumers actually need. I think 
that banks have attempted to serve their customers in a way 
that we are just evolving to really understand. Although I will 
say that we take a very customer-centric approach to the design 
of all our products, where we start with what has the customer 
actually asked you for and how do we best anticipate their 
needs in the future so that we are not just a part of an 
immediate need, but also what is the life cycle of that 
financial life after we go through that. So we will work with 
our bank partners to actually create these products and then 
also help to enable them as their service provider.
    Mr. Tipton. One of the issues I really hear, Mr. Harrison, 
at home from a lot of our small community banks in particular 
is they would like to be able to do something, but regulatorily 
they are inhibited from doing something.
    Are there any regulations maybe that you can point to that 
are inhibiting you from being able to work with some of these 
small community banks?
    Mr. Harrison. I think true lender. The true lender rule I 
think is the one inhibitor that would help us to provide some 
clarity and establish the bank as the true lender. We are 
absolutely ready to engage in any dialog that is necessary in 
order to clarify what that truly looks like from a practical 
business perspective.
    I think that a model that Elevate has actually established 
with our banking partners is one that actually we can use as a 
proxy to better inform and refine that for the entire industry.
    Mr. Tipton. I have the Treasury report. Is there anything 
in particular that you could maybe point to that might be able 
to help Elevate or any other companies to be able to reach out?
    Mr. Harrison. I am not as familiar with the Treasury report 
as that is more recent to me, but I would be happy to go back 
and look at that and get back to you on that for sure.
    Mr. Tipton. Great. Thank you so much, I appreciate that.
    Mr. Rubinstein, great to see another Rubinstein up here and 
glad to have you here. Can you maybe detail briefly what work 
and benefits that you've been working on have yielded really to 
our consumers?
    Mr. Rubinstein. Congressman, thank you for that question. 
The work we are doing is really to protect consumers. We have 
30 million consumers, $7.3 trillion in assets that we need to 
protect. So it is all about protecting consumers from insider 
threats, from individual hackers, and from nation-state 
attacks. It is not only protecting them when they are at 
Fidelity, but it is helping to protect them when they decide to 
use some other service where they connect their Fidelity 
account or in the larger world connect any institutional 
account.
    So we believe that we are trying to move to a space where 
consumers understand how their data is being used when they 
share it, that they are able to monitor that on an ongoing 
basis and able to revoke that consent.
    I've given a few talks on this topic. I also often ask 
people, do you use this personal finance app? Some people say, 
yes, I used to use it. So I said, well, what did you do to stop 
using it? The number one answer is, I stopped using it; and the 
number two answer is, I deleted the app from my phone. Neither 
one of those two things actually stops the harvesting of 
consumer data every day.
    If we can change the way consumers authenticate and the way 
they control that flow, we can put the control back in the 
hands of the consumer so they know how their data is being used 
and they can revoke that consent at any time.
    Mr. Tipton. What exactly can consumers do? That would be my 
response; I just delete the app. But--
    Mr. Rubinstein. So today consumers have to remember all the 
different apps that they use, then go into those apps and 
actually request for it to be deleted and request for their 
data harvesting to stop. They could change their password on 
all their financial institution sites. That is a hardship and 
then people don't remember the new password, or we could just 
flip the model upside-down so that they can get a dashboard at 
their financial institution, whether at their bank, their 
brokerage firm or wherever, where they can have that dashboard, 
see what is going on, and be able to push a button and revoke 
access.
    Mr. Tipton. Great. Thanks so much.
    Mr. Chairman, my time has expired.
    Chairman Luetkemeyer. The gentleman's time has expired.
    With that, we go to the gentleman from North Carolina. Mr. 
Pittenger is recognized for 5 minutes.
    Mr. Pittenger. Thank you, Mr. Chairman. I appreciate it. 
Thank each of you for being here with us today.
    Mr. Cutler, regarding data sharing, as it plays a major 
role on the international stage, are there international 
standards or procedures that you would recommend or drawbacks 
that you would see relative to what can be done in our own U.S. 
financial system?
    Mr. Cutler. Absolutely, sir. In my written testimony, I 
reference several times the U.K. and their standards. I think 
we should look to what the U.K. is doing in the Financial 
Conduct Authority, FCA, as a good model for what we should look 
to. I think in the Treasury report they point to that model 
several times. So I think we should look there.
    Mr. Tipton. Thank you. The Treasury report calls for 
greater harmonization among State regulators for licensing 
requirements. To that end, since many fintech companies are 
subject to these State regulators, are varying licensing 
requirements between States impacting the ability of fintech 
companies to provide new product innovation?
    Mr. Cutler. I think that, Congressman, that is a great 
question. I think there needs to be more State harmonization. 
It is a real hindrance right now. It is an expense for fintech 
companies to apply for these State licenses that are very 
similar but also different.
    So they have to go through the process. They have to apply. 
They have to pay the fees. It is very time-intensive, resource-
intensive. If there was a streamlined process, it would save a 
lot of resources.
    Mr. Tipton. Thank you. So, Mr. Price, your testimony 
discusses the importance of partnerships between the banks and 
the tech companies. To that end, does the current regulatory 
scheme hurt banking innovation?
    Mr. Price. I think to the extent that there is not a level 
playing field, it does. I will just give you one example in 
payments. If you are a fintech, if you are Square, you can put 
in a touchpad and you can get into your account. If you are a 
bank, you can't do that. So that is just one example. So the 
playing field is not level between banks and fintech companies.
    Mr. Tipton. To that end, what change would you recommend to 
encourage innovation?
    Mr. Price. I think a level playing field between banks and 
fintech companies. If you are in the banking business, you have 
regulatory oversight, CRA, HMDA, Fair Lending. If those 
regulations need to be modified or changed, we can do that. But 
it should be the same for anybody who makes a loan or takes a 
deposit.
    Mr. Tipton. Thank you. To each of you, I would ask, 
cybersecurity, of course, is one of the most important issues 
facing companies of all kinds, especially in the wake of the 
Equifax breach. What steps do banks take to protect personally 
identifiable information, private and financial data? Who would 
like to answer that?
    Mr. Price. We have, as I mentioned earlier, FFIEC guidance, 
which is regulatory guidance. We do everything from tabletop 
exercises, ethical hacking, phishing exercises. Our enterprise 
risk culture around this is evolving constantly. We get 
regulated on it every year by the State, Federal Reserve, and 
the FDIC. That is incredibly important to us.
    Mr. Tipton. Thank you. Mr. Rubinstein, did you want to say 
something?
    Mr. Rubinstein. Congressman, this is an area of extreme 
concern for us. It is the number one thing we focus on. As a 
large institution, we have over 700 people who are focused 
specifically on cybersecurity.
    We get attacks just about every day. We fend those off. It 
is an ever-escalating battle of firms like ours employing new 
tools because the bad guys are employing new tools. One of the 
reasons we are so passionate about data aggregation and 
changing the model is we often find criminals take user IDs and 
passwords that they find on other sites.
    So yes, we have all heard about big hacks that have 
happened at low-risk sites. They take those credentials, they 
go open an account at a fintech impersonating that customer. 
They use those, log into a bank or a brokerage firm. They find 
valid ones, and then they use those as a means to attack. So we 
have to defend against that as well. It is an ever-escalating 
battle that we are extremely focused on.
    Mr. Tipton. Thank you. My time has expired.
    Chairman Luetkemeyer. We have a couple of follow up 
questions here for some members, so we will start with Mr. Barr 
for a second round. Thank you.
    Mr. Barr. Yes, thank you, Mr. Chairman, for the follow up.
    Mr. Cutler and Mr. Harrison, you heard my question and Mr. 
Astrada's answer and his defense of the State-by-State 
regulatory model here and the applicability of State usury 
laws.
    Mr. Cutler specifically, to give you an opportunity to 
maybe respond to that, given your testimony here today in 
defense of a clarification of true lender and valid-when-made 
doctrine, and I just invite you to respond to his testimony if 
there is a counterpoint.
    Mr. Cutler. Thank you, Congressman Barr. In my opinion, a 
handful of court decisions have wrongly called into question 
whether the bank is the true lender in a bank-fintech company 
partnership. These court decisions are based on a predominant 
economic interest test that is subjective and that can be cited 
to conclude that the fintech company is the true lender in 
these circumstances. Whether the bank or fintech company is the 
true lender may be the difference in determining whether a loan 
is void or uncollectible.
    I think personally that the uncertainty is having a 
chilling effect on innovation here. So I think it is important 
to address this uncertainty, and I think the legislation that 
has been passed has been helpful and it will be important to go 
forward on that and get signed into public law.
    Mr. Barr. What would be the argument to restrict the 
transferability of loans? What is the argument in favor of 
that?
    Mr. Cutler. I don't see it. When I first started my career, 
I was in the securitization business. When we were in that 
business, it is clear that the rights in the loan followed when 
you transfer it. So it doesn't make sense to me.
    Mr. Barr. Mr. Harrison, can you chime in on this issue?
    Mr. Harrison. Yes, absolutely. I support Mr. Cutler's 
responses. I believe that support for clarification on true 
lender and also support on valid when made is substantiated.
    I don't believe that there is any intent from the fintech 
world, to harm our customers in any way in particular. I think 
that, again, we will abide by regulations as our banking 
partnerships dictate, and we will continue to try to do 
everything that we can to protect our customers.
    Mr. Barr. If Congress does not clarify this issue, tell me 
about the impact on innovation. What will be the impact on 
innovation if there continues to be this uncertainty in the 
legal world on the transferability of loans?
    Mr. Harrison. As much success as a company like mine, 
Elevate has had, there are still 160 million Americans that 
have credit scores that are below 700. We have been able to 
serve a couple million of those, so we are only really 
scratching the surface.
    The reality is that these bank partnerships with fintech 
can help us to enable another multiple of us being able to 
reach out to those customers and be able to understand what 
needs do they actually have so that we can design better and 
safer products for them in the future.
    Mr. Barr. In States where, in rural America, like my 
district, where you don't have access to fintech and you don't 
have access maybe, and if bank-fintech relationships are not 
allowed to flourish, what does that mean? Does it mean more 
bankruptcies? Does it mean more overdrafts? What is the impact 
on those underserved borrowers?
    Mr. Harrison. Yes, I think it does from a macro level. But 
from a micro level, we look at the impact to the customers 
every day. We have customers that don't have the money that 
they need for medical expenses. They don't have the needs that 
they have for home repairs, for car repairs. These customers 
that are in these rural areas, not only do they not have access 
to banking institutions sometimes, but they also don't have 
immediate access to food or to just basic needs that they have 
in order to continue their life.
    So having that outreach and enabling them and giving them 
the resources that they need to maintain their lifestyle is a 
huge impact from a practical perspective.
    Mr. Barr. I really appreciate all the testimony today. I 
think fintech is a huge opportunity for American consumers, 
particularly underbanked consumers, people who live in 
economically distressed places, and rural America.
    And I think Congress does need to start getting serious 
about creating a legal landscape that allows these 
relationships to flourish so that underserved populations can 
have access to these very innovative products.
    Thank you, and I yield back.
    Chairman Luetkemeyer. The gentleman yields back.
    I have just a couple of follow ups, Mr. Astrada.
    Mr. Astrada. Can I just request 30 seconds to answer the 
Congressman's question of why you would restrict it? I just 
think it is just really core to this.
    Mr. Barr. Sure.
    Mr. Astrada. I don't want to restate the point, but I think 
one of the best reasons to restrict the transfer of loans is 
when the very model itself has been hijacked by unscrupulous 
lenders. And I know we can talk about intent, but if you look 
at page 6 of my testimony, it is not about intent or 
subjectivity. Like, the default rate on the securitization of 
marketplace loans has skyrocketed in the last year and a half.
    So whether there is an intent to harm or not, the consumers 
are bearing the risk of those failed loans, and marketplace 
lenders are able to pass it off on the secondary market. And 
there are the cases that some of these marketplace lenders, 
really big ones, some that you hear from every day, their 
defaults are in the double digits. Their default rates are 
close to 50. They are underwriting, they are passing the risk 
for failure to the consumer and the cost to the investor.
    So that is why we are so adamant about restricting the 
transfer of loans in this model. Thank you for the extra time.
    Chairman Luetkemeyer. I have a couple of follow up 
questions. Mr. Rubinstein, you have talked a lot about the 
control of data. And I would just like to get on record who 
actually owns the data? Do you own the data? Does the consumer 
own the data? Whenever they give control to you by signing it 
away, have they given up control of it? Give us exactly where 
this all sets so we know, because we have to build on that very 
premise and that information to be able to understand what we 
are doing here.
    Mr. Rubinstein. Congressman, we come from the very 
straightforward place that the consumer should be able to share 
that data as they see fit.
    Chairman Luetkemeyer. Is there something in law? Is there a 
legal basis for the consumer owning his data somewhere?
    Mr. Rubinstein. I am not a lawyer so I apologize. I 
actually don't know if there is a basis in law. But we take the 
perspective that the consumer should have access. And I think 
Section 1033 of Dodd-Frank calls for the consumer to have even 
electronic access. We do think the consumer should have access 
as well as be able to use that data in a safe, secure, and 
transparent way when they want to use it.
    So if they want to use it with a lending application or if 
they want to use it with a budgeting application or anything 
else, they should have that ability, but they should also know 
what they are getting into. That data should be used at the 
other side for the purpose the consumer thought it was. If they 
think they are using a budgeting app, they should get a 
budgeting app. It shouldn't be that it is a Trojan horse for 
the gathering, accumulating, and reselling of that data. 
Perhaps if the consumer wants to permit it for that purpose, 
the consumer should be able to permit it for that purpose, but 
they should know that is happening.
    We think that burying something on page 35 of a privacy 
policy doesn't help the consumer understand how that is being 
used, and we need to see more explicit consent from the 
consumer for how that data is used and, again, give them the 
right to revoke that consent at any time.
    Chairman Luetkemeyer. Very good.
    Mr. Cutler, one of the concerns I have is that with fintech 
companies, a lot of them are startups, a lot of them are pretty 
thinly capitalized, and to me there would seem to be a risk 
there from the standpoint that if the economy turns down or 
there is a bump in the road or their business model isn't quite 
right that something can happen.
    Would you agree with that? Is there a risk there? Are they 
all in good shape? To me, for the fintech guys to partner with 
the financial institution at some point would seem to be a good 
idea from the standpoint of securitizing their future there 
with some balance sheet strength. Would you like to comment?
    Mr. Cutler. Thank you, Mr. Chairman, for the question. I 
think both options are great. I think partnerships with the big 
banks and all banks and community banks should be encouraged, 
and those can be very beneficial. But I think we also want to 
encourage folks with an idea in a garage to start a new 
business, and if it has little capital but a great idea, we 
should do everything in our power to give them the tools to 
succeed.
    Chairman Luetkemeyer. Mr. Harrison, I think you mentioned 
that 700 seems to be a magic number for the credit score or for 
folks that you want to deal with. I saw an article in the paper 
this week that the new average for people in this country is 
now I think 704, 706, somewhere in that neighborhood.
    Mr. Harrison. Yes, sir.
    Chairman Luetkemeyer. So if that is the average credit 
score, which is the highest in history, that means half the 
people in this country couldn't qualify for stuff that you are 
talking about. Is that right?
    Mr. Harrison. That is exactly right. A little bit over half 
of the population of the U.S. today does not qualify for 
mainstream products. And that is another reason why outreach to 
some of the community banks and being able to help them to 
design products that are safe and secure for their constituency 
is really important.
    We want to be able to design even more products. We want to 
be able to leverage the fact that community banks and also just 
banking institutions in general have a lower cost of capital, 
which is really a lot of their prowess and their understanding 
of the regulations and their oversight, help us to make sure 
that we are doing this in a safe and secure manner.
    So we will absolutely continue to pursue these partnerships 
with banking institutions, because we believe it is the right 
balance that we can have from the best of both worlds.
    Chairman Luetkemeyer. Mr. Price, would you like to comment 
on that?
    Mr. Price. I think the challenge as we have tried to forge 
these partnerships initially was whose customer is it? And if 
it is our customer and we have the checking account, the debit 
account, the credit card, small business loan, and we are doing 
an alternative lending product, we think it is our customer. 
And that has been the flash point.
    And, quite frankly, I think we will forge through that over 
the next half decade or so, and we will get to something we can 
both live with, their business model and ours. That is helpful.
    Mr. Harrison. And I agree with Mr. Price. It is the bank's 
customer for sure.
    Chairman Luetkemeyer. Very good. Thank all of you today for 
your fantastic testimony. I feel like the Maytag repairman 
here, the loneliest man in town. So it is probably time to go 
home. So, again, thank you for your testimony.
    The Chair notes that some Members may have additional 
questions for this panel, which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 5 legislative days for Members to submit written questions 
to these witnesses and to place their responses in the record. 
Also, without objection, Members will have 5 legislative days 
to submit extraneous materials to the Chair for inclusion in 
the record.
    And, with that, this hearing is adjourned.
    [Whereupon, at 10:34 a.m., the subcommittee was adjourned.]

                            A P P E N D I X



                           September 28, 2018
                           
                           
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