[House Hearing, 116 Congress]
[From the U.S. Government Publishing Office]
INCLUSIVE BANKING DURING A PANDEMIC:
USING FEDACCOUNTS AND DIGITAL TOOLS TO
IMPROVE DELIVERY OF STIMULUS PAYMENTS
=======================================================================
HEARING
BEFORE THE
TASK FORCE ON FINANCIAL TECHNOLOGY
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTEENTH CONGRESS
SECOND SESSION
__________
JUNE 11, 2020
__________
Printed for the use of the Committee on Financial Services
Serial No. 116-95
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
______
U.S. GOVERNMENT PUBLISHING OFFICE
42-895 PDF WASHINGTON : 2021
HOUSE COMMITTEE ON FINANCIAL SERVICES
MAXINE WATERS, California, Chairwoman
CAROLYN B. MALONEY, New York PATRICK McHENRY, North Carolina,
NYDIA M. VELAZQUEZ, New York Ranking Member
BRAD SHERMAN, California ANN WAGNER, Missouri
GREGORY W. MEEKS, New York FRANK D. LUCAS, Oklahoma
WM. LACY CLAY, Missouri BILL POSEY, Florida
DAVID SCOTT, Georgia BLAINE LUETKEMEYER, Missouri
AL GREEN, Texas BILL HUIZENGA, Michigan
EMANUEL CLEAVER, Missouri STEVE STIVERS, Ohio
ED PERLMUTTER, Colorado ANDY BARR, Kentucky
JIM A. HIMES, Connecticut SCOTT TIPTON, Colorado
BILL FOSTER, Illinois ROGER WILLIAMS, Texas
JOYCE BEATTY, Ohio FRENCH HILL, Arkansas
DENNY HECK, Washington TOM EMMER, Minnesota
JUAN VARGAS, California LEE M. ZELDIN, New York
JOSH GOTTHEIMER, New Jersey BARRY LOUDERMILK, Georgia
VICENTE GONZALEZ, Texas ALEXANDER X. MOONEY, West Virginia
AL LAWSON, Florida WARREN DAVIDSON, Ohio
MICHAEL SAN NICOLAS, Guam TED BUDD, North Carolina
RASHIDA TLAIB, Michigan DAVID KUSTOFF, Tennessee
KATIE PORTER, California TREY HOLLINGSWORTH, Indiana
CINDY AXNE, Iowa ANTHONY GONZALEZ, Ohio
SEAN CASTEN, Illinois JOHN ROSE, Tennessee
AYANNA PRESSLEY, Massachusetts BRYAN STEIL, Wisconsin
BEN McADAMS, Utah LANCE GOODEN, Texas
ALEXANDRIA OCASIO-CORTEZ, New York DENVER RIGGLEMAN, Virginia
JENNIFER WEXTON, Virginia WILLIAM TIMMONS, South Carolina
STEPHEN F. LYNCH, Massachusetts VAN TAYLOR, Texas
TULSI GABBARD, Hawaii
ALMA ADAMS, North Carolina
MADELEINE DEAN, Pennsylvania
JESUS ``CHUY'' GARCIA, Illinois
SYLVIA GARCIA, Texas
DEAN PHILLIPS, Minnesota
Charla Ouertatani, Staff Director
TASK FORCE ON FINANCIAL TECHNOLOGY
STEPHEN F. LYNCH, Massachusetts, Chairman
DAVID SCOTT, Georgia TOM EMMER, Minnesota, Ranking
JOSH GOTTHEIMER, New Jersey Member
AL LAWSON, Florida BLAINE LUETKEMEYER, Missouri
CINDY AXNE, Iowa FRENCH HILL, Arkansas
BEN McADAMS, Utah WARREN DAVIDSON, Ohio
JENNIFER WEXTON, Virginia BRYAN STEIL, Wisconsin
RASHIDA TLAIB, Michigan
C O N T E N T S
----------
Page
Hearing held on:
June 11, 2020................................................ 1
Appendix:
June 11, 2020................................................ 29
WITNESSES
Thursday, June 11, 2020
Baradaran, Mehrsa, Professor of Law, University of California
Irvine School of Law........................................... 5
Giancarlo, Hon. J. Christopher, Senior Counsel, Willkie Farr &
Gallagher, and former Chairman, U.S. Commodity Futures Trading
Commission..................................................... 7
Kelley, Jodie, CEO, Electronic Transactions Association (ETA).... 9
Ricks, Morgan, Professor of Law, Vanderbilt University Law School 10
APPENDIX
Prepared statements:
Baradaran, Mehrsa............................................ 30
Giancarlo, Hon. J. Christopher............................... 39
Kelley, Jodie................................................ 99
Ricks, Morgan................................................ 114
Additional Material Submitted for the Record
Lynch, Hon. Stephen F.:
Written statement of the American Bankers Association........ 124
Written statement of Cornell University Law School........... 133
Written statement of the Credit Union National Association... 135
Written statement of eCurrency............................... 137
Written statement of the Innovative Payments Association..... 142
Written statement of Isaiah Jackson, author of ``Bitcoin and
Black America''............................................ 161
Written statement of Mobility Capital Finance Inc............ 163
Emmer, Hon. Tom:
Letter to Treasury Secretary Steven T. Mnuchin............... 168
Written statement of Cardtronics and Coinstar................ 170
Written statement of Tony Yezer.............................. 173
INCLUSIVE BANKING DURING A
PANDEMIC: USING FEDACCOUNTS
AND DIGITAL TOOLS TO IMPROVE
DELIVERY OF STIMULUS PAYMENTS
----------
Thursday, June 11, 2020
U.S. House of Representatives,
Task Force on Financial Technology,
Committee on Financial Services,
Washington, D.C.
The task force met, pursuant to notice, at 12 p.m., via
Webex, Hon. Stephen F. Lynch [chairman of the task force]
presiding.
Members present: Representatives Lynch, Scott, Lawson,
Axne, McAdams, Wexton, Tlaib; Emmer, Hill, Davidson, and Steil.
Ex officio present: Representatives Waters and McHenry.
Chairman Lynch. The Task Force on Financial Technology will
now come to order.
Without objection, the Chair is authorized to declare a
recess of the task force at any time. Also, without objection,
members of the full Financial Services Committee who are not
members of the task force are authorized to participate in
today's hearing.
Members are reminded to keep their video function on at all
times, even when they are not being recognized by the Chair.
Members are also reminded that they are responsible for muting
and unmuting themselves, and to mute themselves after they are
finished speaking. That would be helpful.
Consistent with the regulations accompanying House
Resolution 965, staff will only mute Members and witnesses as
appropriate when not being recognized by the Chair, and for the
purpose of preventing inadvertent background noise. Members are
reminded that all House Rules relating to order and decorum
apply to this remote hearing.
Today's hearing is entitled, ``Inclusive Banking During a
Pandemic: Using FedAccounts and Digital Tools to Improve
Delivery of Stimulus Payments.''
I now recognize myself for 4 minutes for an opening
statement.
Over the past several months, the coronavirus has spread
devastation across our country. It has killed more than 110,000
Americans, it has robbed millions more of their jobs, and it
has left Americans wondering how they will pay for even the
most basic necessities such as rent and food.
In response to this crisis, Congress passed the Coronavirus
Aid, Relief, and Economic Security (CARES) Act. Among its many
provisions, we included economic impact payments: $1,200 for
every adult making less than $75,000 a year, with $500 per
parent and child. That was all with the intent to provide
immediate relief to those most in need of it.
The CARES Act was passed into law on March 27th. Today is
June 11th: 76 days later, some Americans are still waiting on
their so-called immediate relief. Many of those people who
needed the help the most were the last to receive it. Although
the IRS and Treasury acted quickly to distribute payments to
Americans, they ran into problems. Some of those problems were
foreseeable; they exist due to long-standing inequities and
deficiencies in our banking system.
We on this committee, and on the task force, have spent
considerable time in this recent session searching for ways to
improve financial inclusion. But the simple truth is that
millions of Americans still lack access to the traditional
banking system. The FDIC has said that nearly 8.5 million
households don't have a bank account, often because bank
accounts are too expensive.
Americans without bank accounts receive their economic
impact payments much, much later than those with bank accounts
and direct deposit. And to make matters worse, many of those
without bank accounts have had to pay check-cashing fees,
exorbitant fees, once they did receive their checks.
A family struggling to make ends meet, while not having
access to bank accounts, is difficult enough in normal times.
In times like these, it can be the difference between a
refrigerator full of groceries and going to bed hungry. With
all of our resources in this country, no family should have to
experience hunger simply because they don't have a bank
account.
So today, we will hear testimony on ways to improve the
delivery of direct benefit payments to Americans. FedAccounts,
consumer accounts at the Federal Reserve, have the potential to
provide free access to bank accounts for the millions of
Americans currently without one, giving them immediate access
to Federal benefits.
Further, we will explore the ways in which new technology
that many of us now use every day, such as the digital wallets
on our phones, can improve inclusion and efficiency in programs
like this.
This conversation is timely and necessary. The House passed
another set of economic impact payments in the Health and
Economic Recovery Omnibus Emergency Solutions (Heroes) Act, to
continue providing this important relief to Americans. We must
learn from the immediate past and the mistakes we have recently
made to ensure that every American gets the access they need
and deserve.
And I look forward to today's discussion.
I would now like to recognize the ranking member of the
task force, my friend from Minnesota, Mr. Emmer, for 4 minutes
to give his opening statement.
Thank you.
Mr. Emmer, I think you are muted. If you would look at that
row of icons just above the picture frame--
Mr. Emmer. It is the Financial Services Committee's Task
Force, and I warned Petrina when this started--you would think
we would be better with the technology, but here we go.
So, you missed all the wonderful things I said about you,
Mr. Chairman. I want to thank you, my colleague from
Massachusetts, for moving this task force ahead, and making
sure it continues to meet. I appreciate you, and I appreciate
all of your staff who are making these things happen, but just
for the record, I want it be known that I think this is
outrageous, ridiculous, and totally unnecessary. I think we
should be in Washington doing our job, and I hope that people
will see that soon.
The conversation today stands to be very insightful on two
topics: the ways the Federal Government can better utilize
technology to increase efficiency in delivery of government
services; and the concept of a centrally-backed digital
currency. I appreciate and look forward to our witnesses'
thoughts on these subjects.
Two months ago, I wrote a letter, along with my colleague,
Darren Soto, urging Treasury to take additional steps to
leverage everything that American ingenuity, entrepreneurship,
and innovation has to offer. As co-Chairs of the Blockchain
Caucus, we have been diving deep on all of the technology and
what it has to offer. It could help to serve both topics of
this hearing that I mentioned previously.
In addition, a wide array of technologies could help the
Treasury distribute the remaining stimulus payments that have
not been distributed yet, and I urge them, and each agency, to
consider new technologies that could help the agencies operate
more efficiently and more quickly.
I want to turn now to the second topic, and what I think
could stand to serve as the sole topic of a hearing like this:
a centrally-backed digital currency. Representative Hill, who
now serves as ranking member of our Subcommittee on National
Security, International Development and Monetary Policy,
highlighted this topic many months ago to the Federal Reserve,
and did it in a bipartisan fashion. Since then, I have heard
that the Fed has been working to research and develop the
concept, a process which I emphatically support, but
unfortunately they have not received the level of public
consideration and transparency that I think is fundamentally
necessary for such a pursuit.
The dollar is changing, and Americans deserve a full
accounting of the work being done and the considerations they
will have to make in ensuring that their leaders continue to
guarantee their freedom and their methods of exchange. In fact,
cash is a public payments infrastructure available to all
citizens without any need for permission. Currently, cash works
solely by the bearer of the instrument. As the economy moves
increasingly online, the use of cash will diminish.
To engage in electronic commerce, citizens need an
intermediary in most cases, including many cryptocurrencies. To
be a truly permissionless digital cash however, a digital
dollar must have the same attributes as physical cash. Anything
less would simply create a new intermediate, and it could even
be one offered by the government in competition with private
financial institutions.
It is American values like freedom, privacy, openness, and
permissionless entrepreneurship that have led us to dominate
global commerce and innovation. We should have the courage of
our convictions to build these values into a digital dollar,
and not to emulate systems like China's new digital wand, which
is closed, centralized, surveilled, and permissioned so that
access can be denied and payments blocked by those in power.
Electronic cash will be as susceptible to illicit use as
the dollar is today. The same rules that apply to physical cash
that should apply to a digital dollar. While this may not go
far enough for some, the only way to go further would be to
create a permission closed and surveilled system like China's.
I hope the conversation surrounding the digital dollar
today takes into account these essential freedoms that
Americans may often take for granted, but must also ensure to
continue on as we move into this new era. As I have said from
the beginning, technologies like this can empower individuals
and make their government more accountable directly to them. We
can't cede this power to the government at the expense of the
individual.
With that in mind, I appreciate the witnesses' time. Mr.
Chairman, I yield back.
Chairman Lynch. The gentleman yields back.
The Chair now recognizes the gentlewoman from California,
the Chair of the full Financial Services Committee, Chairwoman
Waters.
Okay. We are going to wait for Chairwoman Waters.
I now recognize the ranking member of the Full Committee,
the gentleman from North Carolina, Mr. McHenry, for 1 minute.
Mr. McHenry. Thank you, Mr. Chairman, and thank you, Mr.
Ranking Member. Thanks for holding this hearing. And I want to
thank our witnesses for being available to us digitally.
I think when we look back at this period of time, it will
be viewed as a great accelerator, especially when it comes to
technology enhancing and quickening technological trends
across-the-board. What I mean by that is it has forced us to
adopt a new way of living right now that only a few months ago
seemed years away.
Think about, for example, a remote work force. That was
commonly viewed as an option for some, but now it is a default
for all of us--or most of us.
Banking is undergoing a fundamental change as well. To meet
these challenges, we have to change our mindset about how we
build for tomorrow. We need to explore advanced digital tools
to make banking easier, safer, and especially, more inclusive.
So, thank you for the hearing today. Thanks for the
engagement, and I look forward to the questions.
Chairman Lynch. Thank you. The gentleman yields back.
The Chair now recognizes the gentleman from Georgia, Mr.
Scott, for 1 minute.
Mr. Scott. Thank you, Chairman Lynch.
And let me just echo everything that has been said. We have
this new and exciting technology to use to be able to sustain
our American consumers.
As you will recall, in the 2008 dilemma that we had, our
crisis, it took an extraordinarily long time to even get the
help down to our constituents. This time, we did it a little
quicker with this pandemic, but not quickly enough.
I look forward to our great panel of witnesses who will be
providing information in terms of how we can really take this
exciting technology and bring it home and deliver better
reception to our American people.
Thank you, Mr. Chairman.
Chairman Lynch. I thank the gentleman.
Today, we welcome the testimony of an esteemed panel of
experts.
First, Mehrsa Baradaran, a professor of law at the
University of California, Irvine. Professor Baradaran has
written extensively about financial inclusion and inequality,
including the books, ``How the Other Half Banks: Exclusion,
Exploitation, and the Threat to Democracy,'' and ``The Color of
Money: Black Banks and the Racial Wealth Gap.'' We want to
welcome you, professor.
Second, the Honorable Chris Giancarlo, senior counsel at
Willkie Farr & Gallagher, and the former Chairman of the U.S.
Commodity Futures Trading Commission. Mr. Giancarlo also leads
the Digital Dollar Foundation, which is dedicated to exploring
options for a central bank digital currency. Welcome.
Third, Jodie Kelley, the CEO of the Electronic Transactions
Association, which represents over 500 companies in the
electronic transactions space. Ms. Kelley also previously
served as Vice President and Deputy General Counsel of Fannie
Mae. Welcome.
Fourth, Morgan Ricks, professor of law at Vanderbilt
University. Professor Ricks has worked extensively on financial
reform, including the FedAccounts proposal, and from 2009 to
2010, was a senior advisor at the Treasury Department. Welcome
to you, also.
Our witnesses are reminded that your oral testimony will be
limited to 5 minutes. A chime will actually go off at the end
of your time, and I ask that you respect the members' and other
witnesses' time by wrapping up your oral testimony. And without
objection, your prepared statements will be made a part of the
record.
Professor Baradaran, you are now recognized for 5 minutes
to give an oral presentation of your written testimony.
STATEMENT OF MEHRSA BARADARAN, PROFESSOR OF LAW, UNIVERSITY OF
CALIFORNIA IRVINE SCHOOL OF LAW
Ms. Baradaran. Thank you.
Chairman Lynch, Ranking Member Emmer, and members of the
Task Force on Financial Technology, thank you for calling this
important hearing on this critical issue.
Last week, hundreds of people waited for hours in a single-
file line for an ATM at a New York City branch of KeyBank, the
only bank branch offering unemployment benefits without fees.
The New York Times reported that every day from dawn till dusk,
since the beginning of the crisis, there has been a long line.
The New York Post reported that the crowd, mostly made up of
people of color, had come from the five burroughs amidst a
pandemic, and rolled the dice on their health, just to avoid
getting gouged with surcharges at out-of-network banks.
Mr. Quan, a former Food Network ``Chopped'' champion, who
is now out of work, said he biked from Chinatown to save $3,
which can sometimes mean a meal eaten or not.
Mr. Flores, a 45-year-old, out-of-work line cook from
Queens, waited nearly 3 hours before getting to the teller. He
said, ``I feel tired, but I need the money.'' Mr. Flores, who
has a wife and 2 children, withdrew $500. He pays his $1,500-a-
month rent in Astoria in installments to his landlord because
he has to make sure his family has enough to eat.
Ms. DeLeon, after about 3 hours in line, finally withdrew
$1,000, but she needed the full $1,500. She said, ``My feet
hurt, my back hurts,'' but she has to go back in line the next
day.
These problems are not new. In fact, I have been shouting
into the void of academic research for a decade about how our
banking system leaves out some of our most vulnerable
communities--Black communities, Brown communities, low-income
communities, and rural communities.
Believe it or not, the problem has gotten even worse since
I began researching these issues. Over the last 10 years, as
banks have become bigger and more profitable, over 93 percent
of bank closings were in low- to middle-income (LMI)
communities. Rural America has lost 50 percent of its banks.
With the Fed's recent approval of the SunTrust-BB&T merger,
an estimated 700 more branches will likely be closing soon,
mostly in the south and the southeast, and many of these areas
will be lower-income areas.
Even in places where the banks are plentiful, like New York
City, there are barriers: high fees, which are primarily paid
by low-income people; slow payment processing; and the lack of
trust in banks. Those who are unbanked or underbanked, which is
up to 25 percent of the population, spent time and money in
line to pick up their checks, and then in another line to pay
their bills in cash to the electricity office, the water
office, and the landlord, and in line to purchase money orders
so they can mail their bills on time, and on and on and on.
Those of us with enough of a financial cushion, who put our
bills on autopay and easily switch between syntax apps and
credit cards, might need some financial education to understand
the difficulties faced by our fellow Americans, like having to
bike from Queens to Manhattan to avoid bank fees just to use
our money. This crisis will push many more families onto this
thin ice.
The simple problem is this: The U.S. payment system is only
available to banks and their customers. If you are outside of
it, you pay a toll. I urge Congress to open up these tracks on
which our nation's commerce runs. To everybody, Congress need
not reinvent the wheel. Congress already created a public
system, the Federal Reserve. The Fed's explicit charter is to
serve the public interest and to increase the integrity,
efficiency, and equity of the U.S. payment system. That was a
mandate that Congress gave.
I urge Congress to ensure equal access to this important
public utility. I believe the most effective way to do this is
through a partnership between the Fed and the postal offices of
this country. On the back end, these deposits would be handled
by the States and secure Central Bank as my colleague, Morgan
Ricks, will explain.
On the consumer side, you could go to the local post
office, deposit your money, and take cash out of the ATM
without fees. You could set up automatic bill pay through
online or mobile banking, get a debit card, and use it for
online shopping, et cetera.
FedAccounts, digital wallets, all of those are essential
and will be great, but we need to close this cash digital
divide first. Between 20 to 40 million Americans don't have
broadband. A lot of the elderly are not comfortable with mobile
payments or don't have mobile phones.
To illustrate the point, I have another story that happened
in Duncan, Arizona, when they lost their only bank. The nearest
bank was 40 miles away. Business revenue shrank by 20 percent
when they lost their bank. American Banker journalist, Kevin
Wack, went to the town and began talking to residents. One
hotel owner said that she just walks over to the post office,
buys a single stamp, and requests cash back, which is cheaper
than patronizing any of the town's ATMs.
An electricity cooperative in town uses the post office for
their business accounts rather than keeping currency on hand or
driving far away. Thankfully, he says, the post office is the
unofficial bank.
Another resident said, ``It has made me think, why
shouldn't the post office start to fill the role of small banks
in these towns?''
The last thing I will say, and then I will close, is that
the post office is America's most trusted institution,
according to a new marketing firm, and it was designed that way
by our first President, George Washington, in 1792. For over
200 years, the USPS has maintained its public-serving mission
by offering equitable services to all.
Thank you.
[The prepared statement of Professor Baradaran can be found
on page 30 of the appendix.]
Chairman Lynch. Thank you.
Mr. Giancarlo, you are now recognized for 5 minutes.
STATEMENT OF THE HONORABLE J. CHRISTOPHER GIANCARLO, SENIOR
COUNSEL, WILLKIE FARR & GALLAGHER, AND FORMER CHAIRMAN, U.S.
COMMODITY FUTURES TRADING COMMISSION
Mr. Giancarlo. Thank you, Chairman Lynch and Ranking Member
Emmer, and also, thanks to Chairwoman Waters and Ranking Member
McHenry.
I would like to begin with three observations from my time
in public service.
First, much of America's physical infrastructure, its
bridges, tunnels or airports that were once state-of-the-art in
the last century, as we have all seen, have been allowed to
age, deteriorate, and become obsolete in this century.
Well, the same is true about some of our financial
infrastructure. Methods of payment and settlement, shareholder
and proxy voting, and investor access to disclosure that were
once state-of-the art in the 20th Century are showing age and
limitations in this new 2lst Century. Nothing reveals the
limits of our accounts-based financial system more starkly than
the current COVID-19 pandemic, when tens of millions of
Americans are waiting a month or more to receive these payments
by paper check.
My second observation is that we are certainly entering a
new era when things to value, like money and agricultural and
mineral commodities, CompTraks, stock certificates and land
records, and cultural assets like art and music and votes, and
even personal identities, will be stored, managed, and moved
around in a secure way from person to person without central
validators. It is done by collective cartography and a
decentralized network of computational algorithms.
And my third observation is that unless we act, this coming
wave of innovation will put enormous strain on our aged
financial systems.
This task force is reviewing several ideas for digital
dollar electronic cash payments. They look at digital dollars
in terms of benefits distribution and financial inclusion for
existing account-based systems.
Today, I would like to discuss with you a far more
fundamental digital dollar proposed recently by the Digital
Dollar Project. It is a U.S. central bank digital currency, or
CBDC, as it is known. This type of digital dollar would be a
new additional form of money. It would be a digital bearer
instrument with the same legal status as the dollars in one's
purse, but on a mobile device. It would operate alongside
existing forms of money distributed through the existing two-
tier banking system open to new entrants and potentially
recorded by distributed ledger technology.
This type of CBDC would increase financial inclusion by
broadening access to services through digital wallets on
smartphones, and would enable the sending of COVID relief
immediately to the electronic wallets of underbanked
populations and expand their ability to access financial
services and to use e-commerce platforms that do not accept
physical cash.
Yet, this type of digital dollar is about more than
financial inclusion in a crisis. Today, most of the world's
tradeable commodities and contracts are priced in U.S. dollars.
Tomorrow, they will be digitized, tokenized, and coupled with
algorithmically-driven smart contracts.
We must prepare to modernize the dollar from a simple
analog instrument into a digitized unit of account, one that
measures, supports, and transacts those same digital
commodities and contracts.
We must future-proof the dollar today for that digital
tomorrow. Doing so is in the national interest. It will spark a
creed of new industries and economic growth. Yet, crafting it
will be an enormous undertaking. It must be done carefully,
thoughtfully, and deliberately.
Something that is worthy of the dollar's global importance
can't be rushed. It will take time to get right, but now is the
time to get started.
The recent launch of SpaceX reminds us that the United
States explored outer space through a series of pilot programs.
They were called Mercury, Gemini, and Apollo. So, too, we
should explore a digital dollar through a series of pilots. The
Federal Reserve is already looking at central bank digital
currency--
Chairman Lynch. The gentleman's time has expired.
Mr. Giancarlo. Thank you very much.
[The prepared statement of Mr. Giancarlo can be found on
page 39 of the appendix.]
Chairman Lynch. Ms. Kelley, you are up next for a 5-minute
presentation of your written testimony.
Thank you.
STATEMENT OF JODIE KELLEY, CEO, ELECTRONIC TRANSACTIONS
ASSOCIATION (ETA)
Ms. Kelley. Thank you, Chairman Lynch, Ranking Member
Emmer, and members of the Task Force on Financial Technology.
My name is Jodie Kelley. It is my privilege as CEO of the ETA
to speak with you today on how the modern payments industry is
using digital tools to deliver CARES Act stimulus money to the
American people.
ETA is a trade association that represents the broad group
of companies that provide electronic products and services,
including credit and debit cards, peer-to-peer products, mobile
wallets, and other forms of digital payments.
Ours is an industry that in North America alone, moves over
$8.5 trillion a year in card and P2P payments securely,
reliably, and quickly. During the 5 minutes I will speak today,
over 1.3 million transactions will be processed. It is highly
regulated, highly competitive, constantly innovating, and
investing and leveraging new technologies to create better
products and services.
On behalf of ETA and its members, thank you for the
opportunity to participate in this important discussion. The
unprecedented challenges caused by the pandemic have
appropriately caused policymakers not only to move quickly to
address the immediate crisis, but also to ask how we can
position ourselves to do even better in the future. That is a
particularly important question when it comes to those who are
most vulnerable.
I am honored to be part of such a distinguished panel who
bring a variety of perspectives on ways in which technology may
be brought to bear to advance financial inclusion, and most
relevant for today's hearing, to further improve delivery of
stimulus money to those who need it most. These are important
conversations that have potentially broad-reaching
implications.
The perspective I bring today is on what is happening now
and the ways in which the electronic payments industry is
bringing to bear the innovation, the technology, and the know-
how it has developed over decades to deliver these stimulus
funds quickly and securely. I am proud of the role that our
industry is playing in delivering both economic impact payments
and much-needed unemployment benefits.
I would just like to highlight today in particular a few
ways in which that is happening. The first is through the use
of prepaid cards. This is a simple but effective solution which
has long been deployed to distribute roughly $140 billion per
year of government benefits, including SNAP and Social Security
payments. Nearly all States also use these types of cards to
distribute over $20 billion in unemployment benefits a year.
And for consumers, these prepaid cards work. They are network-
branded. They can be used to make purchases online or in stores
in the same way a credit or debit card can be used. The funds
on them are FDIC-insured, and critically, they carry the same
consumer protections as credit and debit cards do. Most
notably, they are protected from liability if the cards are
lost or stolen, or if fraudulent charges are made on the card.
And for those Americans with a smartphone--over 80 percent
of us--there are additional benefits. These cards can be loaded
into mobile wallets, bringing added convenience and additional
security, and both the cards and the mobile wallets can be used
simply by tapping at the point of purchase. There is no need to
sign anything, no need to touch anything that is not your own.
Surveys of consumers during the pandemic made clear that that
provides peace of mind.
I would also like to touch on peer-to-peer (P2P) payments
such as PayPal, Venmo, and CashApp. These were also used to
distribute stimulus dollars. These apps are popular. In 2019,
they were used to transfer over $300 billion. And their
popularity is growing, and it is growing because these products
have quickly evolved in response to consumer needs. Individuals
can now have their paychecks, their tax refunds, or their
benefits payments sent directly to them. Consumers can load
cash on the P2P services, they can store money, they can use
them to make purchases, and they can use them to reload prepaid
cards.
As a general matter, consumers are not charged to use these
services, and because they can be accessed through a
smartphone, again, there is broad reach and it is easy for
individuals to use them.
Now, in my time this morning, I have only touched on the
innovation that is happening in the electronic payments
industry. Our members are investing tens of billions of dollars
annually in research and development that harnesses and deploys
technologies, including blockchain, to make it easier for
individuals to accept, hold, and use money securely. And we
will continue to integrate new ideas and technology to make the
current global payment system stronger and safer.
The future is exciting, but we also appreciate the
opportunity, as we look forward to the possibilities, to take a
moment to discuss what is already happening and the very
tangible and real ways that current products and services are
being deployed to meet the needs of individuals, including the
underserved. We are keenly mindful of how important that is.
So on behalf of ETA and our member companies, thank you,
once again, for the opportunity to participate. I am happy to
answer any questions that you may have.
[The prepared statement of Ms. Kelley can be found on page
99 of the appendix.]
Chairman Lynch. Thank you, Ms. Kelley.
Professor Ricks, you are now recognized for a 5-minute
presentation of your written testimony.
Thank you.
STATEMENT OF MORGAN RICKS, PROFESSOR OF LAW, VANDERBILT
UNIVERSITY LAW SCHOOL
Mr. Ricks. Chairman Lynch, Ranking Member Emmer, and
members of the task force, thank you for the opportunity to
testify today on this vital topic.
My remarks will focus on the FedAccount proposal. The
coronavirus crisis has highlighted critical shortcomings in the
U.S. system of money and payments. The FedAccount proposal
offers a compelling way for Congress to address these
shortcomings. FedAccounts would improve the delivery of relief
payments to American households during crises, and they would
offer an array of other transformative benefits as well.
So, what are FedAccounts? FedAccounts are digital dollar
balances maintained on the books of the Federal Reserve. It is
important to understand that the Fed already offers accounts to
a small, favored set of clients. These accounts are called
reserve balances, which are dollar balances maintained as
ledger entries on the Fed's electronic books.
The Fed's digital dollar accounts are highly attractive,
offering instant payments, higher interest than ordinary bank
accounts, and full government backing, no matter how large the
balance, with no need for deposit insurance.
But these accounts are currently restricted to an exclusive
clientele, consisting of banks, certain other large financial
institutions, and governmental entities. What this means is
that the Fed currently issues two types of money: first, it
uses paper dollars, an open access resource available to all;
and second, it issues digital dollars, which are restricted to
a small number of privileged financial institutions. This
creates a striking asymmetry at the core of our monetary
framework, and Congress should do away with it. Specifically,
Congress should direct the Fed to give the general public,
individuals, businesses, and institutions the option to hold
digital dollar accounts at the central bank.
Under the version of the proposal that I and my co-authors
have described, FedAccounts would offer all of the
functionality of ordinary bank accounts, with the exception of
overdraft coverage. It would come with debit cards, for
example, and they would support online bill pay. But the Fed
would charge no fees and would not impose any minimum balance
requirements.
Moreover, the Fed could partner with the U.S. Postal
Service to serve as a ubiquitous, ready-made, physical branch
network for these accounts. The FedAccount program would
transform digital dollars into an open access resource, a form
of public infrastructure just like the paper dollars that the
Fed issues.
And this would offer a range of major public policy
benefits. First, it would foster financial inclusion. If
properly structured, the FedAccount program could bring
millions of households into the mainstream of money and
payments. This would not only lubricate future relief payments
during crises, but it would also improve the economic well-
being of low- and moderate-income families.
Second, it would enhance consumer protection by lessening a
consumer's need for expensive non-bank credit products, such as
payday loans.
Third, it would reduce the likelihood of financial crisis
by displacing unstable deposit substitutes, which are a major
source of instability in our financial system.
Fourth, it would speed up payments. When it comes to
payment speed, the U.S. lags behind much of the rest of the
world. Payment delays are costly for the economy as a whole and
are especially so for households living paycheck-to-paycheck.
FedAccounts would ameliorate this problem, because all payments
between FedAccounts would clear in real-time on the Fed's
books, just like interbank transfers have for decades.
Fifth, FedAccounts would improve monetary policies, because
the Fed's interest rate adjustments would be transmitted
directly to a wide swath of the public rather than just to
banks, as they are today.
Sixth, the FedAccount program could greatly reduce payment
system tolls, because the Fed presumably would not charge
interchange fees to merchants accepting its debit cards. This
would be a boon to businesses large and small.
Finally, FedAccounts would help maintain the dollar's
status as the dominant global currency. As we speak, China is
piloting its digital Yuan. If we don't innovate, we risk
falling behind.
Far from straining fiscal resources, FedAccounts would
likely generate revenue for the Federal Government, provided
the program attracted profitable large accounts and not just
small accounts.
Keep in mind, the Fed is a moneymaker for taxpayers. It
remits tens of billions of dollars to the Treasury Department
every year. With FedAccounts, those remittances would probably
increase.
To be sure, the FedAccount program will present
implementation challenges. Cyber security, fraud prevention,
and privacy issues would need to be addressed. However, as and
I and my co-authors have described in our writings, these
challenges are surmountable. Moreover, like other digital
currency, it would rely primarily on efficient, reliable
systems that the Fed has used successfully for decades, and
FedAccounts would be fully integrated and seamlessly
interoperable with the mainstream payment system.
To conclude, FedAccounts could deliver an array of
transformative public policy benefits, both in and out of
crisis periods. The system of money and payments is a public
good. It is critical public infrastructure, akin to highways
and the legal system. The FedAccount proposal would supply this
resource directly to the general public. It deserves serious
consideration from Congress.
Thank you again for the opportunity to testify today. I
look forward to answering your questions.
[The prepared statement of Professor Ricks can be found on
page 114 of the appendix.]
Chairman Lynch. Thank you, Professor Ricks.
At this time, I would like to go back to the Honorable Mr.
Giancarlo. Sir, I inadvertently shortened your time. You had
another 45 seconds. So, I apologize to you for interrupting.
There was a rogue chime that I heard in my headphones, and I
cut you short.
So, how about if I give you another minute? If you have any
other ideas you would like to amplify on some of the things you
raised, I would be happy to recognize you for 1 minute.
Mr. Giancarlo. That is very kind, Mr. Chairman.
There is a point I would like to make, which is that what
we would like to see is exploration of the idea of a U.S. CBDC
through a series of pilot programs. I mentioned the ones that
we used to explore space, and I think a similar approach should
be taken here.
Throughout our history, America has been a leader in
innovation. Whether it was launching the space program or
building the internet, we brought to every one of those
innovations our core values: the rule of law, individual
liberty; free enterprise; and, importantly, the right to
privacy.
Around the world, CBDC innovation is gaining peak global
momentum, and the world is asking what role America is going to
play and whether our core values will be brought to bear.
The choice is either that we take a leadership role or that
we accept that others will take a leadership role and they will
put their values in this new innovation. I think we have to
choose to lead, and I think if we do, we will increase
financial inclusion, enhance democratic values, and further
improve the dollar for more generations to come.
Thank you for that additional time. Those are my final
remarks.
Chairman Lynch. Thank you, sir. I appreciate that, and
again, I apologize.
I will now recognize myself for 5 minutes for questions.
Based on the conversation today, a few things are clear. We
have millions of Americans who are in need of help to weather
this storm currently, and we have millions of Americans who are
being shut out of the banking system, making it harder to get
aid to them; but I think the panel here has described some
measures that could certainly mitigate or possibly eliminate
the challenges.
One of the things I worry about is, even looking at the Fed
right now--let's go to the FedAccounts issue. I have been
watching over these last few years how the Fed has tried to go
to this FedNow program, which is actually a miniature version
of what we are talking about with FedAccounts. For those who
are not familiar with it, the FedNow accounts were really meant
to provide immediate relief to banks. The Fed is a bank to the
banks, and they were trying this whole framework where they
would do for the banks what FedAccounts would do for citizens.
That process, the rule took 3 years, and now the
implementation--I think we are talking about 7 or 8 years for
the Fed to upload that program.
So I want to ask, Professor Ricks and Professor Baradaran,
what are we talking about here in terms of getting this up and
running? We have this desperate need out there now that we all
recognize and the structural inequities here. What are we
talking in timeframe if we really focus on this, put resources
towards it, best-case scenario, what do you think that looks
like?
Ms. Baradaran, I would like to hear from you first, if
possible.
Ms. Baradaran. I think it will take as long as we put our
priority into it. If we want FedAccounts through postal banks,
we can do that. We have the technology. There are a few things
around the edges that we could do. We would need ATMs at
certain post offices. We would need the Fed to do real-time
payments and other types of efficiency things. But those are
things that are well within our technological capacity, our
institutional capacity. These are things that we can and could
have done a year ago, so I think we could do that very quickly.
Chairman Lynch. Okay. Thank you.
And, Professor Ricks, could you amplify on that a little
bit?
Mr. Ricks. The FedNow initiative was an outgrowth of the
faster payments initiative that the Fed started in or around
2015, and we have been waiting a long time for this. There have
been improvements. The clearinghouse, the private consortium
has taken measures to improve payment speed and yet we are
still lagging behind the rest of the world.
The Fed itself has been processing real-time instant
payments between accounts on its own for many, many decades
through the Fed wire system, which is extremely efficient.
Accounts on the Fed's own books are processed--the payments
between them are processed extremely quickly in real-time. If
you could put more accounts on that system, you will have more
real-time payments. Now, how long does that take? Well, the Fed
has been opening accounts on its own books since its inception
and processing payments between them.
Retail operations are a different matter, and that would
take some time for the Fed to build out that infrastructure;
but in the meantime, it could rely on contracting with private
sector contractors, external service providers in the banking
system itself to assist until it could build its own
infrastructure.
So if it is a priority, it could be done very, very
quickly.
Chairman Lynch. That is great to hear.
Ms. Kelley, in your testimony you mentioned Venmo and some
of the new apps that are out there, and new technology that
really has expanded access to people who are comfortable with
that technology and those who have access to these smartphones.
It is really amazing.
Do you see any gaps in sort of our technology
infrastructure that might be needed in order to push this out,
to get that segment of the population that is not participating
right now?
Ms. Kelley. Thank you. That is a great question.
What I would say is, 80 percent of Americans have
smartphones and have great facility with them. Clearly, there
is still a gap, with the 20 percent who don't, but the number
of smartphones is increasing, the use of them is increasing. I
just also want to highlight, for those middle- and low-income
consumers who may not have them, they have indicated they
prefer debit cards, they like using debit cards, so there is a
combination of technologies, I think that is well-positioned to
deliver.
Chairman Lynch. That is great. Thank you.
My time has expired. I will now recognize the ranking
member of the task force, Mr. Emmer, for his questions.
Thank you.
Mr. Emmer. Thank you, Mr. Chairman. Hopefully, you can hear
me.
I want to thank the panel for being here today, and
participating under these unusual circumstances, and I
reiterate that I hope we get back to work in Washington, D.C.,
and do our job because if we don't want to show up, I am sure
there are a lot of people who would be happy to replace us.
This one is for Mr. Giancarlo. Under your proposed plan--
and that is what I am going to call it, your White Paper I
think that you recently put out--would the Federal Government
have the technical capability to deny access to or shut down
the accounts of persons who are abiding by the law?
Mr. Giancarlo. Simply, no. We have a long tradition of
privacy rights. It is enshrined in our Constitution in the
Fourth Amendment, and I think actually if we do CBDC right and
bring to it those values, I think an American CBDC could be the
killer app compared to other sovereign CBDCs where there is not
the same expectation of privacy from government surveillance,
such as ones coming out from nondemocracies.
So, I think programming into a central bank digital
currency, a level of individual privacy that accords with our
society's value is vitally important and actually could be very
attractive in a global setting.
Mr. Emmer. That is great.
Continuing with that, Mr. Giancarlo, under your proposed
plan, would personal details from payment activities be
available to law enforcement without a search warrant, either
as names of senders and recipients, amounts sent, or any other
revealing metadata generated by digital dollar payments?
Mr. Giancarlo. I would certainly hope not.
Mr. Emmer. That is not the intent, right?
Mr. Giancarlo. That is certainly not.
Mr. Emmer. Okay.
Mr. Giancarlo. We value privacy very highly. It is
interesting, if you look around the world, say, in Europe, for
example, the Europeans are very sensitive about
commercialization of their data, and yet in their law, the
General Data Protection Regulation (GDPR), they don't have the
same restrictions against government surveillance.
In the United States, we are more comfortable with
commercial use of our data, but we are very sensitive about
government exploitation. We have it enshrined in our
Constitution.
I think if we make sure that the jurisprudence is developed
around this and those values are reflected in the U.S. digital
dollars, the central bank digital currency (CBDC), I think it
could be very attractive on a global and a domestic basis.
Mr. Emmer. At some other time, I would love to have more
discussion with you about the idea that Americans are more
comfortable with the commercial use of our data. I disagree
with that. I think this is going to be a place where we are
going to have to do some work in terms of how much information
Americans actually have about how their personal data is being
used for commercial purposes, and I think that is a different
frontier.
But I do agree with you on the privacy issues, obviously,
and that is why I wanted you to emphasize that.
Thank you.
Ms. Kelley, if I could change gears a little bit, I wanted
to take this opportunity to praise the Administration for the
speed in which the Administration got the majority of the
stimulus payments out the door. This has clearly helped
Americans who need the money the most.
With that said, I think it is essential that we work to get
money to the remaining 35 million American citizens who have
not received their stimulus payments as fast as those others.
Many of these citizens are unbanked and have bills coming due
and need the money. Treasury, through the Bureau of the Fiscal
Service in the IRS, has attempted to reach citizens through
existing programs. It seems that Treasury could look at
alternative payment solutions, like new digital channels that
provide instant access to funds to reach these unbanked
individuals.
What is your suggestion for Treasury to identify more
effective, efficient modern payment solutions, aside from
prepaid cards and sending paper checks?
Ms. Kelley. Thanks for that question.
We agree completely that it is critical to get these
dollars in the hands of those Americans who need them and to do
so quickly, and we are mindful, as you are, of the fact that so
many have not yet received the payments. We agree that checks
are not the right way to go for all of the reasons that the
panels have discussed. It is slow, you then have to cash the
checks, which can be expensive and difficult, and then once the
checks are cashed, you have to do something with the cash.
We think in the very short term, leveraging existing
programs is the way to go. It works. We know it works. It is
being used and has been used successfully. But we agree that
industry should work in partnership with government to
determine ways in which we can deploy additional technologies,
both to get these current payments out but also to position for
the future.
But for now, we think both of the mechanisms that we
described are actually working relatively well and, because
they are available and immediate, would be the things that we
recommend turning to in the short term.
Mr. Emmer. Thank you.
Thank you, Mr. Chairman. My time has expired.
Chairman Lynch. The gentleman yields back.
The Chair now recognizes the gentleman from Georgia, Mr.
Scott, for 5 minutes.
Mr. Scott. Thank you very much, Mr. Chairman.
As I am listening to this exciting and exuberant
conversation, I am concerned about our inability so far to be
able to address what I think is a very pressing issue, and that
is the lack of financial education, particularly for our
younger generations.
When I listen to the information that our panelists are
passing out, I am aware of how rapidly we are moving to a
cashless society, without cash, and doing this without any
regard to how, do we bring our American people along with us,
how do we bring along our younger generations?
Did you all know, for example, that out of 50 States in our
nation, only 17 of our State school systems even offer one
course in financial education or financial literacy? And then,
with this technology coming in, as wonderful an asset as it is,
it is making our financial system far more complicated.
And as you move from a cashless society, there are certain
segments of our population who are not even on board the train:
65 percent of African Americans conduct their financial
transactions in cash. When you put that together with only 17
of our State school systems even offering one course in
financial education, we need to begin to draw our attention to
it and make sure we are bringing our full nation along with us
as we move in what is warp speed with this technology.
Having said that, let me start with you, Ms. Kelley. With
the 2008 crisis that came along, it took 10 weeks to get the
stimulus checks out. With this crisis, it took 2 weeks. Now,
that is a really good improvement. What do you attribute that
improvement to?
Ms. Kelley. It is definitely true that as we have moved
forward in time, our ability to push money out has improved
with it, and we are moving more quickly this time than we did
in the last instance that you referenced. But I would also say,
as others have said, it is equally true that they are not
moving quickly enough, and that there is more that needs to be
done.
And there are different things that we are doing this time,
like increasing the use of prepaid cards, and increasing the
use of digital tools, including P2P, that have helped with that
clearly and that can help more if we rely on them more, if we
rely on them further and really kind of leverage what we are
doing well now to do better.
Mr. Scott. Good.
Let me move to another area that I have been working on,
and that is frauds and scams as we have moved along,
particularly with the stimulus checks, and using--the thieves,
the scammers out there are using our advances in technology to
create even more creative ways of doing the scams.
And I would like to ask you--and, Mr. Giancarlo, if you are
there, I know that you were a former Chairman of the Commodity
Futures Trading Commission (CFTC), and it was wonderful to work
with you over in my committee, CEAC, on several of those
issues, and I know the CFTC has been very interesting; but how
can--what do you all see on how we can get greater safety and a
concern with the different techniques of scams that are out
there?
Chairman Lynch. The gentleman's time has expired, but we
will allow Mr. Giancarlo to answer the question.
Mr. Giancarlo. Thank you very much. I don't see myself on
the screen, so I hope you can see me.
When I was at the Commission, with your great support, we
really had a very strong enforcement program because, as the
technology moves on, the fraudsters and the scammers move along
with it. And it is critically important that regulatory
agencies that have enforcement efforts and have enforcement
powers stay ahead of the technology so they can stay ahead of
the next generation of fraudsters and scammers.
Mr. Scott. Thank you.
Mr. Giancarlo. Thank you.
Chairman Lynch. Thank you to the gentleman, Mr. Scott.
Next, we have the Full Committee ranking member, the
gentleman from North Carolina, Mr. McHenry, for 5 minutes.
Mr. McHenry. Thank you, Chairman Lynch.
My question is for you, Mr. Giancarlo. Can you explain why
the digital dollar is such an important tool? Just the top line
here, in a succinct way, what does the digital dollar have to
do with financial inclusion in government subsidies? Why don't
we start there?
Mr. Giancarlo. Well, it is so important, for the reasons we
are talking about, because we have populations that are
underbanked and unbanked, and they are a diverse population.
There are a lot of reasons. Some of those are young people who
just have not yet come into--they don't have mortgages and they
don't have automobiles, and they have very rudimentary banking
activities, but they are very skilled with smartphones and
mobile devices, and that is a way of reaching them. It is about
reaching--it is about onramps into the financial system and
making them as simple and as accessible as possible. And for a
new generation, this is how--you go to where they live, and
this is where they live. They live in an underlying mobile
environment. Let's bring it to them.
Mr. McHenry. Okay. But many folks live in rural America,
and they live in areas that I like to refer to--I think they
should be referred to as, ``banking deserts.'' Just like we
have food deserts in urban areas, we have banking deserts in
certain communities in urban areas, and certain communities in
rural areas. And so if you travel across the country, you
recognize this, and you see they don't have access to branches.
So, how would something like a digital dollar help these
folks?
Mr. Giancarlo. During my time with the Commission, I
traveled around the country, and I met with folks in rural
areas, and the big issue for them is broadband access. I met
with agricultural producers who use their mobile devices to
look up prices that are trading in places like Chicago for
agricultural commodities to know that they are getting the
right price at the grain elevator. Once they go out of
broadband access or wireless access, then they have trouble
with that. They are sophisticated as well. We need to get them
access; but if we do, the lack of a branch bank is not
insurmountable because they can have that access on their
mobile device.
Mr. McHenry. Okay. So to that point, access to broadband
and access to a mobile phone, would that access issue be a
barrier to accessing the digital dollar? How do you remedy
that?
Mr. Giancarlo. No. I think it would actually be a direct
onramp to a digital dollar. What is a digital dollar? It is the
same thing as the dollar in your pocket, only it is on your
mobile device. And we have a big problem with mobile access in
rural areas, but if we solve that, the facility that people
have with the mobile phone is great.
There are populations--and I think Mr. Scott mentioned
this--with folks who have just been outside the banking system
but are very comfortable with the notion of bearer instruments
and fiat currency. They may also find that a digital currency
is a starting point to come into greater financial inclusion
easier than actually going to a bank. Even if there was a bank
in their district, they might find a mobile device to be an
easier access point.
Mr. McHenry. Okay. So what you are suggesting is this could
be a major answer for people accessing even basic governmental
benefits, not sophisticated and complicated issues of
commodities trading, but just basic access to the benefits that
they are rightfully due under the law; is that--
Mr. Giancarlo. Yes, it is. And I think that, if we think
about benefits, the cost in the infrastructure perhaps for
certain populations making mobile devices available may be
lower costs than actually trying to make bank accounts
available to them, at least as an entry point into CBDC.
Mr. McHenry. Okay. So what about our competition with
China, can you touch on that? How does it play a role in this?
Mr. Giancarlo. I mentioned this in my opening statement. I
think it is about values. Look, China is going to do what China
is going to do, and they see this as an opening. They have a
phrase in China called, ``passing on the curve.'' The curve is
that whenever there is a technological change, they see that as
an opportunity to get a jump on their competition. And they see
this, combined with their Belt and Road Initiative, as a major
opportunity to move out of the global banking system which the
United States dominates.
They have to do what they have to do. Their currency is not
a global reserve currency. So, they have an opportunity here to
take advantage. We, though, think about it in different terms,
and that is, how do we make sure that our values are brought to
bear in this new technology? Because this is coming. The
question is, what role do we want to play in it, and are we
determined to bring our values to bear or are we willing to
live with the values of our economic competitors brought into
this new round of things?
Mr. McHenry. Thank you. Thanks for your testimony.
I yield back.
Chairman Lynch. The gentleman yields back.
The Chair now recognizes the gentleman from Utah, Mr.
McAdams, for 5 minutes.
Mr. McAdams. Thank you, Mr. Chairman.
Ms. Kelley, I am going to direct my first question to you.
As you know, as Congress responded to the coronavirus pandemic,
we faced a choice of moving quickly or responding perfectly,
and I think we made the correct choice by responding quickly.
And many of those programs have now been implemented or are
underway, whether it is the Paycheck Protection Program or the
economic stimulus payments, and many of your member companies
have been involved in both of those programs and others.
So my question is, taking a step back and thinking toward
the next economic or other crisis and what we can do to prepare
now for that crisis, what are some of the lessons that we have
learned from our COVID response? How can we improve delivery of
benefits to businesses and individuals moving forward, and what
role can new technologies play in delivering those benefits?
Ms. Kelley. Thank you for that question, Congressman. We
applaud the actions of Congress in moving quickly to respond to
the crisis. And we agree that the impetus to move quickly and
the quick action was the right call.
In terms of taking a step back and looking at lessons
learned and where we are today, there are a few I think that we
can draw already and others that we will clearly draw over
time.
First, I think there is a real need for government and
industry to come together and identify exactly what it is we
are trying to accomplish, whether it is getting dollars in
people's hands quickly across a broad spectrum or otherwise,
determine what is available and where there are gaps, and then
look for existing tools to fill those gaps and particularly
technology tools.
There are so many fintech tools out there that can be
deployed. As we were doing this in real time, obviously, that
is difficult to do, but now that we have a moment to take a
breath, I think it is the time to do it.
I also just think we should leverage what we have. As we
discussed, surveys of unbanked and lower- to middle-income
Americans demonstrate that they actually prefer to spend using
debit cards. Well, through this crisis, we have put those in
people's hands. Some people already have them as part of their
government benefits, but they now have them as part of this. We
should be out there educating people on how they can use them,
making sure they hang onto them, because now that they have
them, if we need to act again, we can quickly do so, so,
leveraging what we already have.
And I just want to make one more point with respect to them
that is important. We talked about the fraud that inevitably
comes up when there is a crisis like this. That is true. That
is an added benefit of these debit cards. They protect
consumers from fraud. So if they are lost or they are stolen or
they are scammed or a bad actor gets ahold of them, that
provides protection to a population that really, really needs
it, and that we provide.
Mr. McAdams. So I guess to any of the other panelists, any
lessons learned from this pandemic that might be applied to the
future?
Mr. Giancarlo. If I could make a suggestion, I think we do
need to explore this new innovation. We need to start exploring
the next level of technology side by side with the existing
accounts-based technology if, for nothing else, to build
greater redundancies in the system, but also greater
optionality, and more tools in our toolbox to use in crises
like this.
Ms. Baradaran. And I think I want to underscore what Ms.
Kelley said here. It is using the tools that we have very
quickly, and I think this is one of the things--she is right.
Most people, under $50,000, prefer to use debit cards. And so,
how do we meet people where they are at, and make sure our
solutions match the problem and is not something that we want
on the other side?
So what we want is a blockchain basis, and we can discuss
that, but the problem here is the banking deserts. It is the
unbanked and underbanked who--and we have the technology to
meet those needs. And so, I think that is critical at this
juncture.
Mr. McAdams. Thank you.
Mr. Chairman, I yield back.
Chairman Lynch. Thank you, Mr. McAdams.
The gentleman yields back. We will now go to the gentleman
from Arkansas, Mr. Hill, for 5 minutes.
Mr. Hill. Thank you, Mr. Chairman. I want to thank you for
this terrific hearing. I want to thank Lisa and Clement for
maintaining our technology for our committee, and I
particularly want to thank Full Committee Chairwoman Waters and
Ranking Member McHenry for recognizing back in the autumn of
2018 that a FinTech Task Force was essential for the United
States to review its regulations, review its laws, review State
laws, and make sure that we can be competitive globally as the
financial services industry continues its migration from paper
to analog to a fully digital distribution system.
And, of course, as a Vandy graduate, it's always good to
have a professor from Vanderbilt. ``Anchor Down,'' Professor
Ricks, I'm glad to have you here.
Mr. Ricks. I want to mention first this issue of
underbanked, particularly in rural areas and the number of
counties that now no longer have a physical banking location. I
spent a good part of my career in community banking in a rural
State, Arkansas, so I'm very familiar with this challenge. It
is particularly bad in our large rural States in the western
part of the country.
Part of this is the way we regulate. The Herfindahl-
Herschman Index, which governs bank mergers and forced
divestitures, and the Fed's determination of who gets to buy
banks, really have contributed to this. In other words, we have
forced banks to divest of branches in small rural towns, even
though their share of deposits isn't even a very accurate
measure of banking concentration any longer. It is a very old
idea and no longer relevant. And this hearing is an example of
why it is not really relevant.
Second, the Fed limits those branch sales mostly to other
banks. And we have a lot of innovative credit unions, small
credit unions, Community Development Financial Institutions
(CDFIs) and other institutions that would love to serve
customers in some of these rural environments, or somebody
doing a partnership in that effort. So I think we need to think
differently about rural banking particularly, and that is not
to say there aren't urban challenges in this arena as well.
Let me turn to this issue of the Fed also being the central
public utility deliverer. Professor Ricks, great presentation,
and, academically, I think it is elegant. I have seen this in
other countries, this kind of thing, a postal bank as a
centralized delivery for consumers. I worked in eastern Europe
in the early 1990s after the Berlin Wall fell. Of course, those
countries were trying to get away from the one-size-fits-all
postal delivery system, but it doesn't take anything away from
your idea.
Representative Bill Foster and I have worked mightily on
this digital dollar issue. And I would like to ask Mr.
Giancarlo, you are really talking about a digital dollar, which
Bill Foster and I have really supported the concept of since we
have written the Fed and the IME about this, and you are
creating that government digital dollar, but you are allowing
other people to use it and set up payment rails. You are not
proposing to centralize that digital dollar at a Fed-only
distribution network. Is that right?
Mr. Giancarlo. That is correct. So it would be--
Mr. Hill. Tell us a little bit more about that?
Mr. Giancarlo. Yes. It would be distributed through the
existing two-tier banking system. It would be created by the
Federal Reserve, and distributed through commercial banks and
other entrants that would be subject to an appropriate level of
regulation against reserves that would be posted by banks to
the Federal Reserve, in the same way the dollar is distributed
now. And then the distribution ledger would be created, would
be able to be written at the point of utilization. So, that
could be at the bank use or perhaps even at the wallet use, but
with the Anti-Money-Laundering/Know-Your-Customer (AML/KYC)
provided, subject to appropriate standards.
And it may be that it is provided by wallet providers, by
existing financial solution providers or others. But it would
be a widely distributed but not a totally decentralized system.
It would be distributed through regulated actors in the
marketplace.
Mr. Hill. Thanks. I noted when David Marcus, who is the
former CEO of Libra, testified several times last year, he
said, ``We would use a digital dollar if it existed.'' Now,
that may be sales talk to the Members of Congress on his part,
but thank you, Mr. Lynch.
And I yield back.
Chairman Lynch. Thank you. The gentleman yields back.
We will now recognize the gentleman from Ohio, Mr.
Davidson, for 5 minutes.
Mr. Davidson. Thank you. And I appreciate everyone for
participating in this hearing. And the process is a little
different. I echo the desire to do things live and in person,
but at least we are live. So, thanks for the work that it has
taken to get us to here, and at least we are using some form of
technology here for the hearing.
I would ask unanimous consent to submit for the record a
letter that several of my colleagues, including Ranking Member
Emmer, co-signed to the Secretary of the Treasury, asking for
him and his staff to look for ways to integrate blockchain
technology into our response to this public health crisis.
Chairman Lynch. Without objection, it is so ordered.
Mr. Davidson. Thank you. Many American companies are on the
leading edge of blockchain technology. And I believe China's
recent adoption of a fintech platform, along with the awareness
that delivery of COVID-related payments could be improved, has
generated renewed interest in the power and capabilities of
blockchain, including moving payments securely, quickly, and
transparently.
I will also add that I have been proud to participate in
events hosted by Women of Color in Blockchain, and Coinbase,
organizations that have shown that blockchain is a force of
financial and entrepreneurial inclusion and diversity that I
think members of this committee should take seriously,
particularly as we have put a lot of emphasis on underbanked
and unbanked people.
However, I am concerned that our laws or, more accurately,
our lack of laws and lack of regulatory clarity within the
digital asset space will hamper the innovation that needs to
take place here in the United States, which is why I continue
to stress the importance of a bill I have introduced called the
Token Taxonomy Act. It is a bipartisan bill cosponsored by
Democrats and Republicans, including many members of this
committee.
The bill would help regulators, industry, and consumers
have certainty and clarity about when securities law would
apply to distributed ledger-based projects. The bill has
received supportive statements from organizations such as the
U.S. Chamber of Commerce, the Blockchain Association, NASDAQ,
IBM, and the Coin Center.
We are here today, though, to discuss the government's role
in adoption of financial technology to improve the delivery of
payments to individuals. And I have joined several colleagues
in the letter referenced.
Mr. Giancarlo, you are a well-regarded subject matter
expert in this space, and really moved the U.S.'s role far down
the road in your previous role at the CFTC. You have clearly
taken an interest in the whole space, not just in the central
bank digital currency (CBDC). As you look at it, what drives
the need for a central bank digital currency versus other types
of digital tokens such as stablecoins, cryptocurrencies or
other existing tokens in the space?
Mr. Giancarlo. Please don't perceive any of my advocacy for
development of a U.S. central bank digital currency to be a
call for any suppression of, or moving away from, these other
efforts. I think in our free market system, America has always
innovated, with a lot of innovation going on simultaneously,
and it is for the marketplace to determine which of those new
innovations are appropriate and receive the public's patronage.
And so, I think we have benefited to some degree from the
launch or the work of Libra to see inefficiencies in our own
system, and yet at the same time, I view a U.S. central bank
digital currency as a fundamental element of the economy.
Our economy is built upon the dollar. If we don't modernize
the dollar for modern times, then it will be like our airports
and our public transportation systems; it will become
increasingly out of date.
All of the economic activity that is built upon the dollar
relies on the dollar to modernize. And as we watch these other
innovations going on, we see the creativity around them, the
exploration they are doing. We need to take some of that and
apply it to our dollar itself so that it stands the test of
time.
Mr. Davidson. I think that was well-said. I have likened
some of our approach in this space to the Sears Roebuck
approach to retail, and we certainly don't want to replicate
that effort.
My time is rapidly fading away, but briefly, when you think
about all of the use cases, so much in the blockchain
technology is focused on payment systems and currency. In fact,
so much of the language refers to it as, ``cryptocurrency.''
Could you maybe highlight the importance of blockchain beyond
just payment systems and technology, and the opportunity we
have if we had regulatory clarity.
Mr. Giancarlo. I had the honor to serve at the U.S.
Commodity Futures Trading Commission, which oversees some of
the world's largest markets for hedging and some of the world's
most important commodities and contracts, whether they be
agricultural commodities like soybeans and cotton, whether they
be mineral commodities, whether they be energy products or some
of the world's most important contracts, hedging instruments.
All of them are priced in dollars. That is an enormous
advantage to the United States. It is one of the many
underpinnings of the dollar supremacy, that the world hedges
its exposure to all of those commodities in dollar markets.
All of these commodities are moving to a digital format.
They are going to go onto distributed ledger. They are going to
become tokenized. They are going to become programmable. How
long can the dollar remain a world reserve currency if it does
not also become digitized, programmable, so that those
instruments can be converted into this new digital format? This
is a sea change. This is a new wave of the internet that is
coming over us. It is going to have profound ramifications, and
we need to innovative alongside of it. We can't stand still.
Mr. Davidson. Thank you so much. My time has expired, and I
yield back.
Chairman Lynch. Thank you. The gentleman yields back.
We will now go to Mr. Steil of Wisconsin for 5 minutes.
Mr. Steil. Thank you very much, Chairman Lynch. I
appreciate you holding today's hearing. I, too, look forward to
being back and in person for future hearings in Washington.
I think we are diving into a terrific question, which is,
how do we get more people banked? How do we increase our
inclusion in the financial services space? And as I am reading
a lot about the potential in particular on the FedAccounts, I
think it is a bit of an incomplete solution.
So, what I would love to do if I can, Mr. Chris Giancarlo,
is ask you a question about, where else can we look inside
these regulatory burdens that we place on traditional
depository institutions that, if reformed and if we make the
adjustments, would actually, just using our current system,
really create access for the unbanked to join the current
financial services system?
Mr. Giancarlo. Please don't read anything into what I am
saying to be pouring cold water on the need to modernize our
banking system, to further financial inclusion, to bring
participants who should have bank access into that. We need to
do that. And I think some of my fellow panelists have explored
some very good ideas on this, and their expertise on this is
greater than mine. My background is as a market regulator, not
a banking regulator.
But I also believe that this new CBDC technology provides a
way to both move into the future, to--the great Wayne Gretzky
says he was successful because he skated to where the puck is
going. This is where the puck is going. We need to skate to
where the puck is going. But that doesn't mean we should not
still take steps to further financial inclusion. Issues of
banking deserts are really important issues.
So we do need to take steps, and there are some very good
ideas out there. I wish my expertise was deeper in this to give
you specific suggestions, but we have a great panel who can.
Mr. Steil. I appreciate it. I just think it is important to
reiterate that inside this discussion of what I think is a bit
of an incomplete solution on the Federal accounts, is to make
sure that we don't take our eye off the ball, on the importance
of reviewing what is a heavily regulated sector of our economy.
And removing some of these unnecessary barriers, I think
will actually have a positive impact on individuals who have
been historically underserved and those who are deserving and
in need of bank access.
Let me shift gears for you, Mr. Giancarlo, if I can, and
come back to you again. And in particular, as we look, China
has begun experimenting with digital currencies, and it has
been commented on, could you just continue that discussion
about the potential implications of a Chinese digital currency?
Because I think what we need to be aware of is, as you said, go
where the puck is going for the great Wayne Gretzky.
But what is China doing today? What should the United
States be doing? And as China is moving forward, what are the
implications for the U.S. as a world reserve currency, U.S.
sanctions enforcement, consumer privacy in trade? If you could
just comment, obviously briefly, here.
Mr. Giancarlo. To explore that, perhaps I could just paint
a picture of, say, a few years from now in East Africa there is
a city of, say, 4 million people and it has one water
purification plant built by China under its Belt and Road
Initiative.
It will use 5G technology and sensors built in that plant
to indicate when the plant is running low in chlorine, for
example. It will send a 5G message back to a Chinese supplier
that will supply that chlorine.
But here is the important thing: It will be paid for in
digital RMB directly to the Chinese supplier. It will totally
bypass the global banking system, which we in the United States
have dominated, but which is also the basis of sanctions power.
Sanctions power is a way of dunning bank activity.
So China is building this very thoughtfully, but they will,
within their Belt and Road Initiative, be outside of a banking
system.
Now, China has its reasons for doing what it has to do, but
do we sit still or do we also explore this technology and bring
to it the values that we have brought to the space program,
that we have brought to the internet: values of privacy; values
of government with respecting the rights of individuals and not
seeing it as a means of surveillance; the rule of law; et
cetera, et cetera. That is why we can't sit still.
This is going to be a very powerful new technology. We have
used that in the past. We need to use it in the future to be a
leader in that new technology.
Mr. Steil. Thank you very much. I couldn't agree more that
we need to be forward-thinking, and forward-looking to make
sure that we remain globally competitive, in particular against
the Chinese, who are moving aggressively in the financial
services space.
I appreciate your time, and everyone's time here today.
And I yield back. Thank you.
Chairman Lynch. The gentleman yields back.
I am now happy to recognize the full committee Chair, the
gentlelady from California, who has been the leading advocate
for inclusive banking and using FedAccounts to accomplish that
purpose, Chairwoman Waters.
Chairwoman Waters. Thank you so very much, Chairman Lynch.
I certainly appreciate your leadership. I appreciate this
hearing we are having today, but I appreciate more than
anything the fact that you have been in the leadership of
dealing with the problem that so many of us have been concerned
about for so long, and that is, what are we going to do about
the unbanked?
People in America continue to lack access to basic banking
services, which has slowed the delivery of stimulus payments
from the CARES Act. In fact, nearly 35 million people have
received paper checks, not direct deposits to their bank
account.
However, I am concerned that the people who most likely
need stimulus payments may not even be able to deposit a paper
check.
Some reasons that folks say they are unbanked include:
distrust of banks; not having enough money to maintain a bank
account; and a lack of accessibility to a branch bank.
Fintech companies are stepping into the unbanked space by
marketing digital wallets as low-barrier alternatives to bank
accounts for U.S. consumers.
And so to Professor Ricks, you have penned a proposal to
use FedAccounts to quickly deliver stimulus payments to all
individuals in a crisis. I agree with you, and I have drafted a
bill that I would like to have your comments on, a bill that
would use this delivery mechanism to require the Fed to provide
$2,000 in monthly payments for adults, and $1,000 for every
child, until the pandemic ends.
Would you briefly describe how this proposal could help
bank the unbanked and be a more efficient and equitable way to
deliver stimulus payments? How does this proposal compare to
what fintech companies are doing to provide financial services
to unbanked households? And if you have been through this
before I joined the hearing today, please just say so.
Mr. Ricks. Thank you so much, Chairwoman Waters. Just by
way of context, Congress had hearings in the late 1980s on the
problem of the unbanked, and here we are more than 3 decades
later still facing the same issues.
The Federal Reserve Board gave testimony at that hearing in
1989 and said, ``Don't worry, private sector innovation is
going to solve this problem.'' And here we are 30 years later,
talking about the same problem. So we should applaud and
celebrate private sector innovation and technology
developments, but it shouldn't be an excuse for public policy
stasis.
When the Fed was created, at the time it was created,
before it was created bank notes themselves, paper money was
issued by the private banking system. We created the Fed and it
took on that role.
And most of us think that was a good idea, that the Fed
should be in the business of offering physical paper currency
to the general public as a resource. The question is whether we
should do that now that we are in the 21st Century. The same
thing for digital money, and that is what FedAccounts are. It
is a form of digital money on the books of the Fed.
And this could be offered. It is an attractive, and
compelling way to deal with the problem of the unbanked, which,
as you know very well through your leadership, Chairwoman
Waters, has been on the public policy agenda for decade after
decade, and we still face the same problem and talk about it
again and again.
At some point, direct public provisioning needs to be part
of the conversation. Other countries have 99 percent bank
account penetration. Here we do not, and we need to figure out
actual public policy solutions.
Chairwoman Waters. Thank you so very much. I appreciate it.
And I yield back the balance of my time.
Chairman Lynch. The gentlelady yields back.
I would now like to recognize the gentlelady from Michigan,
Ms. Tlaib, for 5 minutes.
Ms. Tlaib. Thank you so much to Chairwoman Waters, and
thank you so much to Chairman Lynch for this hearing. I also
want to thank your leadership in making sure that everyone
stays safe during this pandemic, including our witnesses who
don't have to travel all the way down to Washington, D.C., and
risk their lives. So I appreciate that and that we are putting
public health first.
As you all know, I represent the third-poorest
congressional district in the country, so this is a really
critical issue to my neighbors. And we got hit really, really
hard, not only public health-wise with COVID, but also the
economic instability that was created because so many of my
residents were already in survivor mode before the pandemic.
I know, as you all have already testified, that many of our
folks don't really understand what options are out there, but
even more significantly, they don't have access to broadband.
So a lot of them don't really truly understand the alternative
opportunities out there. And, as many of you know, I introduced
the Automatic BOOST to Communities Act (ABC Act), which would
only use/deliver cash assistance through preloaded debit cards,
but would also use the data and that infrastructure as a way to
build out FedAccounts, postal banking, and digital accounts and
eCashing systems.
Professor Baradaran, in your research you wrote about the
need for postal banks and how that could provide services to
unbanked and underbanked communities, and my community as well,
in rural areas. Could you talk to us about that?
Ms. Baradaran. Sure. So if we are going to talk about what
people are doing abroad, every single country practically,
China, India, all of Europe and the United States from 1910
until 1966. Postal banks are a natural ally to the Federal
Reserve central bank banking system, and the reason is because
they have the footprint in every community, regardless of cost,
because that is the mission of the Post Office. It is a very
democratic institution.
And so by linking up the payment system, this is not a
technology problem. The payment system is already there.
Linking up the payment system to the Post Office so people can
go, take out cash and use that money. And if we want to move
toward any of these policies, then we need that one crucial
step of that cash-digital divide, and that is what postal banks
do. It is what they have done here. It is what they do abroad.
So if we want to follow other countries' lead, we could,
but we also are leaders. Our Federal Reserve is probably the
best payment system in the world. It is the most trusted. It is
the most secure. And so, we can just make it a little bit
better. We don't need to follow in this. We can lead.
Ms. Tlaib. Thank you so much. I would love for you to take
a look at the ABC Act.
Ms. Kelley, it took the IRS about 10 weeks to start
distributing the 2008 stimulus payments after enactment. By
contrast, the IRS delivered the first round of the CARES
payments 15 days after the enactment, mostly via direct
deposit, as you probably know, though some have still not
received their payments yet.
I know many of my colleagues on the call, probably get
calls still. Not only that, mix-ups where there is a married
couple who only get the $1,200; they don't get the payment for
the spouse. So, it is just disastrous.
Would the technology described in the Automatic BOOST to
Communities Act, with the preloaded debit cards, with eCash,
eWallets, postal bank and FedAccounts, be able to kind of
address the issue around some of these implementation problems
you see now with paper checks?
Ms. Kelley. Thank you very much. We agree completely that
paper checks are not the way to go, for reasons that we have
discussed, for every reason, the expense associated with them,
the length of time it takes to get them. That is the wrong way
to go.
I think there are lots of interesting proposals out there.
As we discussed, I think they are worthy of conversation and
study. And I think, as everyone agrees, we all should be
forward-looking and looking to see how we can use technology,
harness technology to deliver more effectively to those who
need it most.
As we sit here today, as we talk about the stimulus that
needs to be delivered today, however, what is clear is that we
are going to have to harness the infrastructure that is there
today and that is actually working. Prepaid cards, as you
referenced, actually work well and consumers like them, so
getting them in the hands of those consumers.
There is no broadband issue with a prepaid card. That is
something that we can deploy now, and we are, that works well
and can be transitioned, candidly, to the technology, including
P2P mobile wallets. You can load your prepaid card onto them as
we evolve. We can harness those technologies as well.
And I just want to make the point that those also work well
in rural areas, in some of the areas that we talked about,
because not only is fintech stepping in, but it is leveraging
the existing infrastructure in terms of independent ATMs, which
are prevalent in those areas, but also big box stores, and
other grocery stores, which are also now participating in the
system, helping consumers get cash onto these technologies or
get cash off where they need it.
Ms. Tlaib. Thank you so much.
I yield back, Mr. Chairman.
Chairman Lynch. The gentlewoman yields back.
And that concludes our questioning, I believe. If any
Member is out there and I have not called upon them, let me
know. But I would like to take this opportunity to thank all of
our witnesses for their thoughtful and enlightening testimony.
Without objection, the following letters have also been
entered into the record and will be admitted after today's
hearing: the American Bankers Association, eCurrency,
Cardtronics, the Credit Union National Association, the
Innovative Payments Association, and Professor Tony Yezer of
George Washington University.
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.
This hearing is now adjourned. Thank you. Be safe.
[Whereupon, at 1:34 p.m., the hearing was
adjourned]
A P P E N D I X
June 11, 2020
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