The House Subcommittee on Financial Institutions and Consumer Credit convened this week to discuss opportunities and challenges in the financial technology, or fintech, market.
The challenge lies in how to properly regulate fintechs without hurting their ability to deliver innovation and new products to the industry.
“From online lending and payment companies to blockchain and cryptocurrencies, advances in financial technology are changing the way financial markets work and how consumers access credit,” Subcommittee Chairman Blaine Luetkemeyer (R-MO) said. “With greater understanding of fintech’s capabilities, the Financial Services Committee and Congress can better create an environment that fosters certainty and responsible innovation while maintaining consumer protections.”
Nathaniel Hoopes, executive director of the Marketplace Lending Association, said it is important to bring fintech solutions, like marketplace lending platforms, to a broader segment of consumers.
“Fintech lenders present an opportunity to expand credit access and quality. Although such lenders should be subject to appropriate regulation, the regulation must work with the fundamental economic reality of the market,” said Brian Knight, director of the program on financial regulation and senior research fellow at Mercatus Center, George Mason University. “Ensuring that regulations do not burden fintech lenders more heavily than their bank competitors are burdened and that the validity of their loans is not in doubt are important steps toward helping realize the promises of innovation.”
Brian Peters, executive director of Financial Innovation Now, said fintech provides a great opportunity to enhance economic participation and improve access.
“The benefits [of fintech] could be enhanced through a modernized financial regulatory structure that keeps pace with innovation and meets the needs of today’s consumers and commerce,” Knight said. “The current structure is needlessly fragmented and inconsistent among federal regulators, and varies widely across state jurisdictions.”
Andrew Smith, a partner at Covington and Burling, commented on a bill currently in Congress that would resolve any uncertainty about a bank’s ability to use third-party service providers by confirming that when a bank enters into a loan agreement, it is the bank that has made the loan. Thus, the bank may export its location-state’s interest rate on any loan to which the bank is a party.
“The proposed legislation also would effectively confirm that the full relationship between the bank and the online lender comes under the close scrutiny of the bank’s federal regulator, including the extensive supervisory regime outlined above,” Smith said. “We believe that by reinforcing existing federal banking laws, the proposed legislation would provide much-needed guidance to courts and help preserve the benefits of bank-fintech partnerships for consumers and the economy in general.”