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

     DISRUPTER SERIES: IMPROVING CONSUMERS' FINANCIAL OPTIONS WITH FINTECH

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

                                    HEARING

                                   BEFORE THE

            SUBCOMMITTEE ON DIGITAL COMMERCE AND CONSUMER PROTECTION

                                     OF THE

                        COMMITTEE ON ENERGY AND COMMERCE
                            HOUSE OF REPRESENTATIVES

                         ONE HUNDRED FIFTEENTH CONGRESS

                                 FIRST SESSION

                                   __________

                                  JUNE 8, 2017

                                   __________

                               Serial No. 115-36

     [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

          Printed for the use of the Committee on Energy and Commerce

                            energycommerce.house.gov

                                  __________

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                        COMMITTEE ON ENERGY AND COMMERCE

                              GREG WALDEN, Oregon
                                     Chairman

    JOE BARTON, Texas                    FRANK PALLONE, Jr., New Jersey
      Vice Chairman                        Ranking Member
    FRED UPTON, Michigan                 BOBBY L. RUSH, Illinois
    JOHN SHIMKUS, Illinois               ANNA G. ESHOO, California
    TIM MURPHY, Pennsylvania             ELIOT L. ENGEL, New York
    MICHAEL C. BURGESS, Texas            GENE GREEN, Texas
    MARSHA BLACKBURN, Tennessee          DIANA DeGETTE, Colorado
    STEVE SCALISE, Louisiana             MICHAEL F. DOYLE, Pennsylvania
    ROBERT E. LATTA, Ohio                JANICE D. SCHAKOWSKY, Illinois
    CATHY McMORRIS RODGERS, Washington   G.K. BUTTERFIELD, North Carolina
    GREGG HARPER, Mississippi            DORIS O. MATSUI, California
    LEONARD LANCE, New Jersey            KATHY CASTOR, Florida
    BRETT GUTHRIE, Kentucky              JOHN P. SARBANES, Maryland
    PETE OLSON, Texas                    JERRY McNERNEY, California
    DAVID B. McKINLEY, West Virginia     PETER WELCH, Vermont
    ADAM KINZINGER, Illinois             BEN RAY LUJAN, New Mexico
    H. MORGAN GRIFFITH, Virginia         PAUL TONKO, New York
    GUS M. BILIRAKIS, Florida            YVETTE D. CLARKE, New York
    BILL JOHNSON, Ohio                   DAVID LOEBSACK, Iowa
    BILLY LONG, Missouri                 KURT SCHRADER, Oregon
    LARRY BUCSHON, Indiana               JOSEPH P. KENNEDY, III,
    BILL FLORES, Texas                   Massachusetts
    SUSAN W. BROOKS, Indiana             TONY CARDENAS, California
    MARKWAYNE MULLIN, Oklahoma           RAUL RUIZ, California
    RICHARD HUDSON, North Carolina       SCOTT H. PETERS, California
    CHRIS COLLINS, New York              DEBBIE DINGELL, Michigan
    KEVIN CRAMER, North Dakota
    TIM WALBERG, Michigan
    MIMI WALTERS, California
    RYAN A. COSTELLO, Pennsylvania
    EARL L. ``BUDDY'' CARTER, Georgia

                                     7_____

            Subcommittee on Digital Commerce and Consumer Protection

                             ROBERT E. LATTA, Ohio
                                     Chairman
    GREGG HARPER, Mississippi            JANICE D. SCHAKOWSKY, Illinois
      Vice Chairman                        Ranking Member
    FRED UPTON, Michigan                 BEN RAY LUJAN, New Mexico
    MICHAEL C. BURGESS, Texas            YVETTE D. CLARKE, New York
    LEONARD LANCE, New Jersey            TONY CARDENAS, California
    BRETT GUTHRIE, Kentucky              DEBBIE DINGELL, Michigan
    DAVID B. McKINLEY, West Virgina      DORIS O. MATSUI, California
    ADAM KINZINGER, Illinois             PETER WELCH, Vermont
    GUS M. BILIRAKIS, Florida            JOSEPH P. KENNEDY, III,
    LARRY BUCSHON, Indiana                   Massachusetts
    MARKWAYNE MULLIN, Oklahoma           GENE GREEN, Texas
    MIMI WALTERS, California             FRANK PALLONE, Jr., New Jersey (ex
    RYAN A. COSTELLO, Pennsylvania           officio)
    GREG WALDEN, Oregon (ex officio)

                                      (ii)

                                 C O N T E N T S

                                  ----------
                                                                       Page
    Hon. Robert M. Latta, a Representative in Congress from the State
      of Ohio, opening statement.....................................     1
        Prepared statement...........................................     3
    Hon. Janice D. Schakowsky, a Representative in Congress from the
      State of Illinois, opening statement...........................     3
    Hon. Greg Walden, a Representative in Congress from the State of
      Oregon, opening statement......................................     5
        Prepared statement...........................................     6
    Hon. Frank Pallone, Jr., a Representative in Congress from the
      State of New Jersey, opening statement.........................     6
        Prepared statement...........................................     7
    Hon. Michael C. Burgess, a Representative in Congress from the
      State of Texas, prepared statement.............................    78

                                   Witnesses

    Jeanne M. Hogarth, Vice President, Center for Financial Services
      Innovation.....................................................     9
        Prepared statement...........................................    12
    Javier Saade, Managing Director, Fenway Summer Ventures..........    27
        Prepared statement...........................................    29
    Christina Tetreault, Staff Attorney, Consumers Union.............    32
        Prepared statement...........................................    34
    Peter Van Valkenburgh, Director of Research, Coin Center.........    45
        Prepared statement...........................................    47

                               Submitted Material

    Statement of the Electronic Transactions Association, June 8,
      2017, submitted by Mr. Costello................................    79
    Letter of June 8, 2017, from John Berlau, Senior Fellow,
      Competitive Enterprise Institute, to subcommittee members,
      submitted by Mr. Costello......................................    81
    Statement of Kaspersky Lab, June 8, 2017, submitted by Mr.
      Costello.......................................................    92
    Statement of Intuit, by Bernard F. McKay, Chief Public Policy
      Officer and Vice President, Corporate Affairs, June 8, 2017,
      submitted by Mr. Costello......................................    95

     DISRUPTER SERIES: IMPROVING CONSUMERS' FINANCIAL OPTIONS WITH FINTECH

                                  ----------

                             THURSDAY, JUNE 8, 2017

                      House of Representatives,
         Subcommittee on Digital Commerce and Consumer
                                            Protection,
                              Committee on Energy and Commerce,
                                                        Washington, DC.
        The subcommittee met, pursuant to call, at 10:05 a.m., in
    Room 2123, Rayburn House Office Building, Hon. Robert Latta
    (chairman of the subcommittee) presiding.
        Members present: Representatives Latta, Harper, Upton,
    Lance, Guthrie, McKinley, Kinzinger, Bilirakis, Bucshon,
    Mullin, Costello, Walden (ex officio), Schakowsky, Clarke,
    Cardenas, Green, and Pallone (ex officio).
        Staff present: Blair Ellis, Press Secretary/Digital
    Coordinator; Melissa Froelich, Counsel, Digital Commerce and
    Consumer Protection; Adam Fromm, Director of Outreach and
    Coalitions; Jay Gulshen, Legislative Clerk, Health; Bijan
    Koohmaraie, Counsel, Digital Commerce and Consumer Protection;
    Paul Nagle, Chief Counsel, Digital Commerce and Consumer
    Protection; Hamlin Wade, Special Advisor for External Affairs;
    Michelle Ash, Minority Chief Counsel, Digital Commerce and
    Consumer Protection; Jeff Carroll, Minority Staff Director;
    Lisa Goldman, Minority Counsel; Caroline Paris-Behr, Minority
    Policy Analyst; and Matt Schumacher, Minority Press Assistant.
        Mr. Latta. Well, good morning. I'd like to call the
    Subcommittee on Digital Commerce and Consumer Protection to
    order, and the Chair now recognizes himself for 5 minutes for
    an opening statement.

    OPENING STATEMENT OF HON. ROBERT E. LATTA, A REPRESENTATIVE IN
                    CONGRESS FROM THE STATE OF OHIO

        Again, good morning, and welcome to our witnesses today. We
    are very glad to have you with us today.
        Today, we continue the Disrupter Series examining FinTech
    and all the ways that entrepreneurs and established businesses
    are looking to give consumers more tools and control over their
    finances.
        Families across the country strive to achieve financial
    independence and stability. Many no longer feel certain that
    their children will be better off than they were at their age,
    a change from just a few years ago.
        Understanding how new technology can assist families in
    managing their finances, especially while on the go, is a
    conversation we need to have.
        Improving consumers' financial options is a clear example
    of the new technology pushing and disrupting established
    industries.
        While we must focus on protecting the consumers, it is also
    important that we keep an eye on what matters to the consumer--
    what are their goals, what motivates them to use one service
    over another.
        How can we encourage innovation while keeping the consumer
    protection bar high? In this conversation about improving
    access to commerce it is important to remember that there are
    generally three relationships people have with traditional
    institutions.
        People have access to all the traditional financial
    services; second, the underbanked who have a checking account
    and maybe a savings account but also use alternative financial
    services like rent-to-own services or auto title loans; and
    third, the 7 percent of Americans who are unbanked, who do not
    have a checking or savings account and how use alternative
    services.
        There are a number of statistics demonstrating how large
    the opportunity is to reach more Americans with relevant
    services. Twenty percent of the U.S. population--over 60
    percent of Americans--are underbanked or unbanked.
        Sixty-four percent of Americans earning less than $30,000
    per year own a smart phone, and finally, over $12 billion were
    invested in FinTech companies in 2016.
        Increasingly, Americans are turning to online and mobile
    banking, according to a 2015 study from the Federal Deposit
    Insurance Corporation. Over 31 percent of Americans used mobile
    banking and that number has likely risen in the last 2 years.
        There are tremendous opportunities for companies to reach
    consumers with new products to help them create a rainy day
    fund for the first time, securely pay their mortgage, rebuild
    their credit budget, manage multiple income streams and invest
    their earnings.
        One of the first questions that come to mind in any
    conversation about money is security. Cybersecurity is an
    ongoing challenge and one the Energy and Commerce Committee is
    tackling head on.
        At this time, one of our other subcommittees in the Energy
    and Commerce is getting ready to start a hearing focused on
    healthcare cybersecurity.
        In this subcommittee we have discussed how cybersecurity
    plays in development and life cycle of a number of connected
    devices through the Disrupter Series.
        While there is no silver bullet, we do need to keep
    cybersecurity at the top of our minds because if consumers do
    not trust the products and services they use are secure then
    they will not use them.
        I would like to thank our witnesses for joining us today
    and I look forward to your perspectives on how we can ensure
    that innovation in the FinTech space continues in the United
    States, how innovation can improve consumer protection and how
    the regulatory environment has impacted innovation.
        Again, I want to thank all of our witnesses for rejoining
    us today for this very important discussion that we will have.
        [The prepared statement of Mr. Latta follows:]

                   Prepared statement of Hon. Robert E. Latta

        Good morning and welcome to the Digital Commerce and
    Consumer Protection subcommittee hearing. Today we continue the
    Disrupter Series examining FinTech and all of the ways that
    entrepreneurs and established businesses are looking to give
    consumers more tools and control over their finances.
        Financial independence and stability is the goal for so
    many families across this country. People no longer feel
    certain that their children will be better off than they were
    at their age--a change from just a few years ago. Understanding
    how new technology can be leveraged responsibly to give people
    on-the-go control over their finances is a critical
    conversation.
        Improving consumer's financial options is a clear example
    of where new technology is going to push and disrupt
    established industries. As much as consumer protection is
    focused on protecting, we also need to keep our eye on the
    consumer too. What are their goals? What motivates them to use
    one service over another? How can we encourage innovation while
    keeping the consumer protection bar high?
        In this conversation about improving consumers access to
    commerce, it is important to remember that there are generally
    three relationships people may have with traditional
    institutions:
         People who have access to all of the traditional
    financial services;
         The underbanked, who have a checking account, and
    maybe a savings account, but also use alternative financial
    services like rent-to-own services or auto title loans; and,
         The 7 percent of Americans who are unbanked--who
    do not have a checking or savings account and only use
    alternative services.
        There are a number of statistics demonstrating how large
    the opportunity is to reach more Americans with relevant
    services:
         20 percent of the U.S. population, over 60 million
    Americans, are underbanked or unbanked.
         64 percent of Americans earning less than $30,000
    per year own a smartphone.
         Finally, over $12 billion was invested in FinTech
    companies in 2016.
        Increasingly Americans are turning to online and mobile
    banking. According to the most recent study from the FDIC
    (Federal Deposit Insurance Corporation), over 31 percent of
    Americans use mobile banking and that number has likely risen
    in the last 2 years.
        There are serious opportunities for companies to reach
    consumers with new products to help them create a rainy-day
    fund for the first time, make faster more secure payments,
    rebuild their credit, budget and manage multiple income
    streams, and invest.
        One of the first questions that comes to mind in any
    conversation about money is security. Cybersecurity is an
    ongoing challenge, and one the Energy and Commerce Committee is
    tackling head on. Upstairs, our sister subcommittee is getting
    ready to start a hearing focused on health care cybersecurity.
    Throughout the Disrupter Series, we have discussed how
    cybersecurity plays into development and the lifecycle of a
    number of connected devices. There is no silver bullet. We need
    to keep cybersecurity top of mind, because if consumers do not
    trust that the products and services they use are secure, then
    they will not use them. Plain and simple.
        I would like to thank our witnesses for joining us today
    and I look forward to your perspectives on:
         How we can ensure that innovation in the FinTech
    space continues in the United States,
         how innovation can improve consumer protection,
    and
         how the regulatory environment has impacted
    innovation.
        Thank you all for joining us today for this important
    discussion.

        Mr. Latta. And at this time, I'd like to recognize the
    gentlelady from Illinois, the ranking member of the
    subcommittee for 5 minutes for an opening statement. Good
    morning.

           OPENING STATEMENT OF HON. JANICE D. SCHAKOWSKY, A
         REPRESENTATIVE IN CONGRESS FROM THE STATE OF ILLINOIS

        Ms. Schakowsky. Good morning. Thank you, Mr. Chairman.
        Today, in the subcommittee, we are going to be looking into
    the potential to provide consumers better options through
    financial technology, or FinTech.
        On the floor this afternoon, the House will be debating
    legislation to gut existing consumer protections for financial
    products. These discussions can't happen in isolation.
        Consumers can only realize the full benefit of FinTech if
    we have reasonable safeguards in place to prevent abusive
    practices, secure personal information and protect consumers
    from fraud.
        The Financial CHOICE Act, what my Democratic colleagues and
    I call the Wrong Choice Act, puts those safeguards in severe
    jeopardy.
        One of the landmark achievements of the Dodd-Frank Wall
    Street Reform Consumer Protection Act was the creation of the
    Consumer Financial Protection Bureau.
        The CFPB is an effective consumer watchdog and it has
    returned $12 billion to 29 million harmed consumers. The Wrong
    Choice Act would gut this critical consumer watchdog. It would
    make it harder for the CFPB to take action to protect
    consumers.
        It would threaten the CPB's funding. It would specifically
    block the CFPB from pursuing consumer protections in areas like
    payday lending and it would block the CFPB's proposed rule
    limiting arbitration to ensure that consumers can defend their
    rights in court.
        Who benefits? Not consumers. Not responsible businesses.
    The winners are big banks like Wells Fargo that open up
    fraudulent accounts for their customers, pay lenders that trap
    consumers in unaffordable debt, credit card companies that
    engage in deceptive practices, for-profit colleges that prey on
    veterans and reverse mortgage companies that put seniors' homes
    at risk.
        The CFPB has proven time and time again that it is a
    research and data-driven agency. It has been actively engaged
    in exploring how FinTech can be part of consumer-friendly
    innovation.
        In October, the CFPB released its Project Catalyst Report
    on Innovation in Financial Services. The report highlighted the
    tremendous potential for FinTech to improve the lives of
    Americans. It also emphasized the importance of building
    consumer protections into new innovations from the outset.
        Effective protections need to be flexible enough to apply
    to new financial products. That's precisely what the CFPB did
    in its rule for prepaid products.
        It requires protections against fraud and unauthorized
    charges as well as basic transparency regarding fees and
    balances.
        The rules apply to both physical prepaid cards and mobile
    wallets because consumers deserve strong protections whether
    they are swiping cards or using smart phones.
        I believe the CFPB's valuable work should continue. I
    choose consumers over unethical companies that engage in
    unfair, deceptive and abusive practices.
        I will be voting against the Wrong Choice Act this
    afternoon. If my colleagues really care about providing quality
    financial options for American consumers, they will do the
    same.
        With proper protections baked in, I believe FinTech will
    have great benefit for consumers. It provides new opportunities
    to reach the unbanked and underbanked households. FinTech
    companies have already made it easier than ever to make person-
    to-person payments.
        We will be hearing much more from our witnesses about some
    of the specific innovations that FinTech companies are working
    on.
        And as with other topics in our Disrupter Series, the
    policy challenge for this subcommittee to consider is how we
    adapt today's rules to tomorrow's technology.
        I look forward to hearing the insight from our panelists as
    we continue efforts to make sure consumers can truly benefit
    from the promise of new innovation.
        And I yield back.
        Mr. Latta. Thank you. The gentlelady yields back.
        At this time, the Chair now recognizes the gentleman from
    Oregon, the chairman of the full committee, for his opening
    statement. Good morning.

      OPENING STATEMENT OF HON. GREG WALDEN, A REPRESENTATIVE IN
                   CONGRESS FROM THE STATE OF OREGON

        Mr. Walden. Good morning. Thank you, Mr. Chairman, and
    welcome to our panelists and to our guests today.
        Today's Disrupter Series takes an important look at how we
    can ensure that innovation's improving options and outcomes for
    consumers and their financial health by way of financial
    technology, more commonly known as FinTech.
        Smart phone adoption has skyrocketed in recent years which
    provides a new platform to reach consumers with basic services
    such as online banking or more complex transactions like
    mortgage applications.
        In Oregon where I come from, the percentage of people
    unbanked or underbanked is slightly higher than the national
    average.
        So if there is an opportunity to help folks engage in
    commerce, start a savings account, become more financially
    secure, we should be giving it serious consideration and
    FinTech could provide that opportunity.
        Disruption or change can be uncomfortable. But if we remain
    focused on the consumer and what is in the best interests of
    the consumer we can move forward productively.
        Startups, incumbents and partnerships are all critical
    components of this conversation. Now, ultimately we know that
    if consumers do not find something useful, they won't use it,
    given the choice.
        The reality is that consumers are demanding better, faster,
    more secure services in every industry. The growth of new peer-
    to-peer payment services like PayPal and Venmo also show that
    the younger generations are quickly adopting these services and
    they will soon expect the same level of service and convenience
    for other traditional financial services as well.
        Block chain is another important component within this
    industry as it has the potential to disrupt how we transfer
    assets digitally with increased transparency and security.
        All of this is to say it's clear that the FinTech world is
    all-encompassing and is quickly growing. The United States
    should continue to be a hub for this innovation and for this
    opportunity and FinTech's rise in popularity demonstrates its
    fulfillment of both.
        So I look forward to the testimony and your comments today
    and continuing to work to increase consumers' financial options
    with FinTech.
        That is the charge this subcommittee has, among many others
    in the innovation environment, and it's ably led by our
    chairman and ranking member.
        So we thank you for being here. I will give you a heads up
    that I also have to go up to the Oversight Investigations
    Subcommittee that's meeting concurrent with this one.
        So I've got your testimony, and I appreciate your counsel
    and your input and look forward to working with you in the
    future.
        With that, Mr. Chairman, I yield back the balance of my
    time.
        [The prepared statement of Mr. Walden follows:]

                     Prepared statement of Hon. Greg Walden

        Good morning. Today's Disrupter Series taken an important
    look at how we can ensure that innovation is driving improved
    options and outcomes for consumers and their financial health
    with financial technology or FinTech.
        Smartphone adoption has skyrocketed in recent years, which
    provides a new platform to reach consumers with basic services,
    such as online banking, or more complex transactions like
    mortgage applications.
        In Oregon, the percentage of people unbanked or underbanked
    is slightly higher than the national average. If there is an
    opportunity to help these people engage in commerce, start a
    savings account, become more financially secure, we should be
    giving them serious consideration. FinTech provides a path
    forward.
        Disruption can be uncomfortable to talk about but if we
    keep focused on the consumer and what is in their best
    interest, we will be about to move forward productively. And we
    know that if consumers do not find something useful they will
    not use it. Startups, incumbents, and partnerships are all
    critical components of this conversation.
        Consumers are demanding better, faster, and more secure
    services in every industry. The growth of new peer-to-peer
    payment services like PayPal and Venmo also show that the
    younger generations are growing up with these services and will
    expect the same level of service and convenience for other
    traditional services as well. Blockchain has the potential to
    disrupt how we transfer assets digitally with increased
    transparency and security. The FinTech world is broad and
    growing.
        The United States should continue to be a hub for
    innovation and opportunity. I look forward to hearing from our
    witnesses about their work to increase consumers' financial
    options with FinTech. Thank you all for being here.

        Mr. Latta. Thank you very much. The gentleman yields back.
        The Chair now recognizes for 5 minutes the gentleman from
    New Jersey, the ranking member of the full committee.

    OPENING STATEMENT OF HON. FRANK PALLONE, JR., A REPRESENTATIVE
                IN CONGRESS FROM THE STATE OF NEW JERSEY

        Mr. Pallone. Thank you, Mr. Chairman. This hearing is an
    update to last Congress' hearings on mobile payments and
    digital currencies.
        Technological advances are making financial transactions
    more convenient and efficient with nine in 10 Americans
    regularly connected to the internet and over 75 percent of us
    having smart phones. Online access to banking has never been
    better.
        New financial products may help people pay and receive
    goods faster and consumers may have better and more secure
    access to their funds and these products also may help people
    have greater control over their financial lives by giving them
    more and better financial information.
        These potential benefits are important but these new
    financial products should have consumer protections attached to
    them just like protections attached to old and more traditional
    financial products.
        Consumer protections are essential and I look forward to
    hearing how we can help ensure there are appropriate safeguards
    while at the same time encouraging this new marketplace to
    thrive.
        One area that is ripe for improvement in the financial
    sector is faster payments. In this day of technological
    advancements, some Americans still have to wait days for their
    checks to clear.
        Oftentimes, these consumers are then forced into turning to
    high cost credit to access their own money.
        In 2015, the Federal Reserve created a task force to review
    the issue of faster payments and I am hoping today for an
    update on the work of that task force.
        People should be able to get real-time access to their
    money. I realize that some actors in this space such as check-
    cashing companies, payday lenders or wire transfer services may
    lose out on fees if real-time access is achieved.
        However, with all of the technological advances that have
    been made delays are really not acceptable anymore and they
    have adverse effects on merchants and others waiting to be
    paid.
        A number of Federal agencies play a critical role in the
    success of financial technology including both the Federal
    Trade Commission and the Consumer Financial Protection Bureau.
        These two agencies conduct research and analysis of
    consumer financial interests, educate consumers and take
    enforcement actions against the perpetrators of financial
    exploitation.
        As some of the witnesses will discuss today, the CFPB is
    working to ensure consumer protections are in place for prepaid
    debit user cards and advising companies wanting to enter the
    FinTech arena.
        This is important work. Yet, today on the House floor the
    Republican majority is trying to gut the CFPB with the CHOICE
    Act, or what many of us are calling the Wrong Choice Act.
        The timing of this hearing is interesting. While some may
    think FinTech is just another disruptive technology that may or
    may not help people, members should be mindful of the bigger
    picture.
        Taking the teeth out of the CFPB is not the answer. The
    CFPB was created to protect consumers from fraud and financial
    products and it has proven itself truly able to help people.
        We should be working together to ensure the CFPB continues
    its robust mission and I hope all the witnesses and those
    interested in today's financial technology hearing join me in
    supporting the CFPB.
        [The prepared statement of Mr. Pallone follows:]

                 Prepared statement of Hon. Frank Pallone, Jr.

        This hearing is an update to last Congress' hearings on
    mobile payments and digital currencies. Technological advances
    are making financial transactions more convenient and
    efficient. With nine-in-ten Americans regularly connected to
    the internet and over 75 percent of us having smartphones,
    online access to banking has never been better.
        New financial products may help people pay and receive
    goods faster, and consumers may have better and more secure
    access to their funds. These products also may help people have
    greater control over their financial lives by giving them more
    and better financial information.
        These potential benefits are important, but these new
    financial products should have consumer protections attached to
    them, just like protections attached to older more traditional
    financial products. . Consumer protections are essential, and I
    look forward to hearing how we can help ensure there are
    appropriate safeguards, while, at the same time, encouraging
    this new marketplace to thrive.
        One area that is ripe for improvement in the financial
    sector is faster payments. In this day of technological
    advancements, some Americans still have to wait days for their
    checks to clear. Oftentimes, these consumers are then forced
    into turning to high-cost credit to access their own money.
        In 2015, the Federal Reserve created a Task Force to review
    the issue of faster payments, and I am hoping today for an
    update on the work of that Task Force. People should be able to
    get real-time access to their money. I realize that some actors
    in this space, such as check cashing companies, payday lenders,
    or wire transfer services, may lose out on fees if real-time
    access is achieved. However, with all of the technological
    advancements that have been made, delays are really not
    acceptable anymore, and they have adverse effects on merchants
    and others waiting to be paid.
        A number of Federal agencies play a critical role in the
    success of financial technology, including both the Federal
    Trade Commission and the Consumer Financial Protection Bureau
    (CFPB). These two agencies conduct research and analysis of
    consumer financial interests, educate consumers, and take
    enforcement actions against the perpetrators of financial
    exploitation.
        As some of the witnesses will discuss today, the CFPB is
    working to ensure consumer protections are in place for prepaid
    debit card users and advising companies wanting to enter the
    FinTech arena. This is important work. Yet, today on the House
    floor, the Republican Majority is trying to gut the CFPB with
    the CHOICE Act. Or, what many of us are calling the Wrong
    Choice Act.
        The timing of this hearing is interesting. While some may
    think FinTech is just another ``disruptive technology'' that
    may or may not help people, Members should be mindful of the
    bigger picture. Taking the teeth out of the CFPB is not the
    answer. The CFPB was created to protect consumers from fraud in
    financial products, and it has proven itself truly able to help
    people. We should be working together to ensure the CFPB
    continues its robust mission.
        I hope all of the witnesses and those interested in today's
    financial technology hearing join me in supporting the CFPB.
    Thank you.

        Mr. Pallone. I would like to yield the remaining 2 minutes
    to the gentleman from California, Mr. Cardenas.
        Mr. Cardenas. Thank you very much, Chairman Latta, and
    thank you very much, Congressman Pallone, for having this
    hearing. Good morning, and thank you all so much for being
    here.
        As some of you might know, my colleague, Congressman
    Kinzinger, and I led a resolution that passed last Congress
    highlighting some of the goals and responsibilities of the
    financial technology industry and how the Government can
    support innovation in this space.
        It was the first legislation related to financial
    technology, or FinTech, that has passed either chamber. I am
    not on the Financial Services Committee, and I don't come from
    a strictly financial services background.
        But let me tell you what brings me to be an advocate for
    smart FinTech innovation. I represent Los Angeles, which has
    five of the top 100 most unbanked Census tracks in the country.
        That means that nearly three out of 10 Los Angeles County
    residents--and L.A. County is 10 million people--are
    underbanked and may rely on short-term lending to pay their
    bills and stay afloat.
        FinTech innovation has the potential to help fix this. The
    reason I came to Congress is effect change that directly helps
    our communities, and working on FinTech at the Federal level is
    a great example of very real potential for change at the local
    level.
        FinTech could potentially give small businesses and
    consumers an alternative way to bank that doesn't force them to
    rely on high-interest short-term loans or other risky money
    management strategies.
        FinTech also has the potential to create hundreds of
    thousands of U.S. jobs. United States is the world leader in
    software development and technology, and it is in our best
    interests to develop a national policy on FinTech.
        This national policy must drive innovation, boost economic
    growth and ensure the protection of every American's personal
    information.
        Above all, we must make sure this policy helps the people
    that need it the most, like the people in my district.
        Thank you, and I look forward to hearing your testimony and
    answers to our questions today, and I yield back.
        Mr. Latta. Thank you very much. The gentleman yields back,
    and that concludes today's opening Member statements.
        The Chair would like to remind all Members that, pursuant
    to committee rules, all Members' opening statements will be
    made part of the record.
        And, again, I want to thank our witnesses today for being
    with us today to talk about this very important topic and
    today's witnesses will each have 5 minutes for their opening
    statements.
        Our witnesses today are Jeanne Hogarth, who's the vice
    president at the Center for Financial Services Innovation;
    Javier Saade, managing director at Fenway Summer Ventures; Ms.
    Christina Tetreault, the staff director at Consumers Union; and
    Peter Van Valkenburgh, research director at Coin Center.
        Again, we appreciate you all for being with us today and
    look forward to your testimony, and Ms. Hogarth, we will start
    with you for your opening statement.
        Thank you very much. If you want to just press that button,
    please, and pull the mic kind of close to you there.
        Thank you.

      STATEMENTS OF JEANNE M. HOGARTH, VICE PRESIDENT, CENTER FOR
    FINANCIAL SERVICES INNOVATION; JAVIER SAADE, MANAGING DIRECTOR,
     FENWAY SUMMER VENTURES; CHRISTINA TETREAULT, STAFF ATTORNEY,
     CONSUMERS UNION; PETER VAN VALKENBURGH, DIRECTOR OF RESEARCH,
                              COIN CENTER

                     STATEMENT OF JEANNE M. HOGARTH

        Ms. Hogarth. Thank you. Chairman Latta, Ranking Member
    Schakowsky and committee members, thank you for inviting us
    here today to share some insights on the potential for
    financial technology to improve Americans' financial health.
        The Center for Financial Services Innovation is a national
    authority on consumer financial health and we lead a network of
    financial services innovators committed to building higher
    quality products and services.
        We believe that finance can be a force for good in people's
    lives and that meeting consumers' needs responsibly is good for
    both the consumer and the provider.
        Nearly three out of five American households struggle with
    their financial health. These households are banked but they
    are not well served.
        What people want and need is more automation of good
    choices combined with control and transparency. Unfortunately,
    most tools today don't provide this control and transparency,
    and FinTech, with better data, better analytics and better
    advice can ultimately provide that. CFSI is committed to
    working industry wide with a range of both incumbents and
    start-ups to encourage and seed innovation.
        In 2014, CFSI partnered with JPMorgan Chase to launch our
    Financial Solutions Lab, which supports the development of
    technology-based products that improve the financial health of
    Americans.
        The lab identifies challenges facing consumers and hosts an
    annual competition. As an accelerator program, we provide
    participants with capital and technical assistance from CFSI,
    JPMorgan Chase and a diverse community of industry partners and
    experts.
        We work with the lab companies to help them monitor the
    financial health of their customers as well as that of their
    own bottom lines.
        The first challenge for the lab was to solve for income
    volatility. Our second challenge was to help families weather
    financial shocks.
        Next week we'll be announcing our third cohort of financial
    tech companies who are trying to improve the financial health
    of consumers with particular emphasis on products on aging
    Americans, individuals with disabilities, people of color and
    women.
        Let me share three examples from our first FinLab cohort.
    Digit helps consumers automate savings by predicting their cash
    flow and identifying savings opportunities.
        Since launching in 2015, Digit has helped users save over
    $500 million. The average Digit user saves between $80 and $170
    a month, and while it's difficult to know if Digit users have
    enough liquid savings to cover an emergency, the use of
    automatic transfers is on the right path toward building a
    savings reserve to cope with an unexpected expense.
        SupportPay believes that technology should be used to make
    family life easier. Through an automated child support payment
    platform, SupportPay is helping parents amicably settle child
    support and alimony directly with each other.
        Today, more than 41,000 people, whether separated, divorced
    or grandparent custodians are using SupportPay and, as a
    result, are 90 percent more likely to exchange child support.
        SupportPay's data show that late payment rates have dropped
    from 33 to 25 percent. Even helps consumers stabilize volatile
    income by guaranteeing a consistent amount of pay each pay
    period.
        The team recently launched the 3.0 version of the app which
    pairs cash flow smoothing with an ongoing financial plan,
    improving consumer engagement and positive financial change.
        Even its focus on rolling out its product to thousands of
    employees of a large employer, which will be announced in the
    coming months.
        Beyond standalone products, it's important for FinTech
    providers to partner with banks, credit unions and other
    financial providers to offer products to a broader set of
    consumers.
        We believe that responsible partnerships provide wins for
    the credit unions and the banks, the FinTech providers and the
    consumers, especially for consumers of smaller and rural banks
    who can expand the array of products they offer.
        Consumer protection is still very much needed but policy
    makers need to identify the right tools to reshape the
    regulation of financial services to fit innovations in the 21st
    century. It's not a question of whether. It's a question of
    how.
        Importantly, we believe that FinTech can help consumers but
    it alone is not sufficient enough to ensure financial health
    for all Americans.
        It takes better job structures, living wages, benefits
    including sick leave and retirement plans and much more.
        Again, we appreciate this opportunity to share these
    insights with the committee and I'm happy to answer any
    questions.
        [The prepared statement of Ms. Hogarth follows:]
        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        Mr. Latta. Thank you very much.
        Mr. Saade, you are recognized for 5 minutes.

                       STATEMENT OF JAVIER SAADE

        Mr. Saade. Thank you. Good morning.
        Chairman Latta, Ranking Member Schakowsky and distinguished
    members of the committee, thank you very much for the
    opportunity to participate here today.
        My name is Javier Saade and I'm a managing director at
    Fenway Summer Ventures. Fenway Summer is a venture capital firm
    that backs young companies innovating at the intersection of
    finance and technology.
        We capitalize fast-growing ventures and serve as a value-
    added partner to the entrepreneurs that lead them. Since 2013,
    we have backed over 30 companies and have co-founded three
    ourselves: a credit card company, a tech-enabled mortgage
    lender, and a private student lender.
        I am honored to be here today and lend a voice to this
    important dialogue. Changing landscape in financial services.
    It's no secret, as all of you have said, that over the last few
    years the financial services industry has undergone a
    significant amount of disruption.
        Many factors have contributed to this but the most
    important, in our view, are the global financial crisis and the
    regulatory response engendered; rapid technological advances;
    secular shifts in consumer behavior and evolving capital
    markets' dynamics.
        Every sector of the financial services industry had been
    affected by these changes. FinTech has the potential to
    transfer the way that financial services are delivered and
    designed, widen credit and capital access funnels and reduce
    friction in the process of payments.
        In the past few years we have seen a proliferation of
    digitally enabled financial products. Just as smart phones
    revolutionized the way in which we interact socially, FinTech
    is revolutionizing how we interact financially.
        In our perpetually connected world, consumers, businesses
    and financial institutions are finding ways to engage in
    financial transactions that are more convenient, cost
    effective, timely, and secure.
        In addressing the traditionally excluded and underserved
    sectors of the population, FinTech companies are well
    positioned to drive innovation. It is estimated that around the
    world more than 2 billion adults are underserved and unbanked.
        In assessing the inclusiveness of the U.S. banking system,
    the FDIC 2015 survey of unbanked and underbanked households
    found that 30 million households either have no access to
    financial products or obtain products outside of the banking
    system.
        By reducing loan processing and underwriting costs, all
    nine origination platforms can enable financial services
    providers to more cost effectively offer small balance loans to
    household and small businesses that have been previously
    feasible. This in turn facilitates credit flow to individuals
    and firms that otherwise would not have access to credit. New
    technologies are also opening up efficient ways to manage money
    and control spending.
        We have seen mobile technology and innovations in
    distribution that enable financial service firms to reach
    communities that were previously unserved because building a
    traditional brick and mortar outlet was not economical.
        While financial innovation holds significant promise, it is
    crucial that all stakeholders understand and mitigate
    associated risks.
        There is a tension between aligning pace of development and
    new products and services being brought to market and the duty
    to ensure that these risks are addressed.
        This is precisely why we at Fenway Summer are focused on
    finding entrepreneurs who display what our firm's founder
    refers to as paradoxical conservatism.
        We look for entrepreneurs who have grand ambitions to
    effect positive change in the financial services industry but
    who understand that the fail fast and often approach typical of
    tech-driven start-ups in other sectors may not be well suited
    to the financial services industry.
        Two examples of our companies: one, EarnUp. It's a company
    that offers automated repayment of consumer loans, and FS Card,
    whose sole product is a credit card targeted towards customers
    seeking to establish, strengthen or rebuild our credit. EarnUp
    helps consumers save money and reduce debt by intelligently
    allocating income towards loan repayments.
        Budget in outstanding loans. EarnUp's technology integrates
    with thousands of services of home loans, student loans and
    auto loans and other asset classes in order to route consumer
    payments automatically.
        FS Card provides access to mainstream and reasonably priced
    credit to consumers in the 550 to 600 credit score range
    through their product called the Build Card, which is an
    unsecured credit card with a typical line of $500. In the
    absence of a product like this, consumers would likely need to
    resort to much more expensive alternatives like payday loans.
        Thanks for listening and, again, I appreciate the
    opportunity to be here with you and share my thoughts on this
    topic and I'm happy to answer any questions you may have.
        [The prepared statement of Mr. Saade follows:]
        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        Mr. Latta. Well, thank you for your testimony.
        Ms. Tetreault, you are recognized for 5 minutes. Thank you
    very much.

                    STATEMENT OF CHRISTINA TETREAULT

        Ms. Tetreault. Chairman Latta, Ranking Member Schakowsky,
    committee members, thank you for the opportunity to testify
    today.
        Consumers Union is the policy and mobilization arm of the
    independent nonprofit organization Consumer Reports. We
    research and report on financial services issues and engage in
    advocacy to encourage fair finance.
        We appreciate your leadership in investigating FinTech as
    we believe that it holds promise to increase inclusion and
    choice without sacrificing safety and security.
        FinTech holds this promise to increase financial inclusion
    by solving some of the problems that consumers report have kept
    them from using traditional financial services.
        Innovative products may provide consumers greater control
    over their financial lives and be offered at a lower cost and
    be more convenient than traditional or alternative financial
    services, leading to greater integration of the unbanked,
    underbanked and unhappily banked.
        We encourage service providers to bake in consumer
    protections as technology often moves at a faster pace than
    regulation. We also believe that there's role for lawmakers to
    ensure that appropriate safeguards are enacted while still
    being flexible enough to allow for new products to thrive in
    the marketplace when they provide meaningful value to
    consumers.
        Contrary to complaints by industry that regulation kills
    innovation, appropriately tailored regulation ultimately
    benefits businesses.
        While financial services regulation is essential for
    protecting consumers from harm, regulation and supervision of
    consumer financial services benefits industry by promoting
    consumer confidence and thereby driving adoption.
        Strong and consistent regulation also ensures that
    businesses that take consumer protections and regulatory
    compliance seriously are not at a competitive disadvantage to
    those that do not.
        Lawmakers and regulators should not hesitate to hold these
    new financial services businesses to the highest standards.
        Some of the most exciting developments in financial
    technology are occurring in payments. Cashless payments, faster
    payments and virtual currencies and the technology behind them
    may pose additional risks to consumers unless there are clear
    rules of the road.
        Cashless payments are improved by the Consumer Financial
    Protection Bureau's final prepaid rule. Our organization
    documented the unfair discrepancy between the protections
    afforded bank debit card users and prepaid card users for many
    years and we are pleased that the final rule no longer
    relegates prepaid cards to second tier bank account status.
        In addition to prepaid cards, the final rule extends
    protections to mobile wallets that store consumer funds. While
    this is a positive development, concerns around mobile payments
    remain.
        For example, consumers making peer-to-peer payments may
    find the complex liability chains make it hard to know who to
    contact if something goes wrong.
        We've also found that some providers do not offer a
    telephone point of contact to resolve issues. We urge
    stakeholders to address these concerns.
        Faster payments are another area where financial technology
    promises great improvement. A number of providers have
    announced plans to bring faster, potentially real-time payments
    to the United States.
        Speed may help bring underserved consumers back into formal
    relationships with financial institutions by reducing or
    eliminating the unpredictable aspects of traditional banking
    that drive consumers away such as fees, surprise fees and
    overdrafts.
        There are potentially unresolved questions about the
    applicable consumer protections and the faster payments
    environment such as when funds received must be made available
    to consumers and we urge stakeholders to work together to
    resolve outstanding issues so that the benefits of faster
    payments may be realized.
        Virtual currencies and the technology behind them hold
    tremendous potential but also may pose consumer risks. Many
    States are grappling with the question of whether these
    businesses should be licensed as money transmitters.
        The issue is complicated as this technology has uses beyond
    financial services. For example, ledgers transactions are
    recorded on may one day be used to protect intellectual or real
    property rights.
        Regulating those businesses as financial services is
    inappropriate. Many proponents of virtual currencies have
    potential to increase financial inclusion. It is precisely
    because disadvantaged consumers may be the first to experience
    harm that strong protections must be in place.
        At present the most pressing consumer protection concern
    around virtual currency is not technology specific. It exists
    because there are businesses built on virtual currency
    protocols that act as financial intermediaries.
        Whenever businesses come between consumers and their value,
    they must be held accountable. We urge a thoughtful approach to
    these technologies that ensures consumer value is protected.
        We believe that new financial products and services should
    be subject to appropriate public review and oversight by
    Federal and State financial regulators to ensure that financial
    services are safe and transparent and we urge providers to do
    their part by baking in consumer protections at the outset.
        Thank you very much for the opportunity to testify here
    today, and I'm available to take questions.
        [The prepared statement of Ms. Tetreault follows:]
        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        Mr. Latta. Thank you very much for your testimony today.
        And Mr. Van Valkenburgh, you are recognized for 5 minutes.
    Thank you.

                   STATEMENT OF PETER VAN VALKENBURGH

        Mr. Van Valkenburgh. Thank you, Mr. Chairman, members of
    the committee. I'm Peter Van Valkenburgh, the director of
    research at Coin Center, an independent nonprofit focused on
    the public policy questions raised by digital currencies and
    open block chain networks.
        I'm going to explain open block chain networks and then
    suggest why we need a unified Federal approach to regulating
    some businesses in this space while also offering a safe harbor
    to other businesses.
        Open block chain networks allow connected computers to
    reach a trustworthy agreement over shared data. The connected
    computers can be owned by anyone in the world.
        The shared data could be a ledger of digital currency
    ownership or any other data for which widespread agreement and
    auditability are essential.
        Notable open block chain networks include the original
    Bitcoin network for electronic cash as well as follow-on
    innovations such as Ethereum for smart contracts and Zcash for
    privacy.
        Open block chain networks are permission lists. There's no
    patent or copyright to license, no university or corporation
    from which to seek a job, no exclusive membership fee to pay.
        Anyone with a computer or a smart phone and an internet
    connection can use these technologies and even can help build
    them. Just as the PC democratized computing and the web
    democratized news and entertainment, open block chain networks
    are democratizing financial services.
        This innovation is inevitable. What remains undetermined is
    whether America will remain a home for permissionless
    innovation, as a venture capitalist might ask, and whether
    there will be responsible innovation, as a regulator might ask.
        Those aspirations are not irreconcilable, but they are also
    not guaranteed. America pioneered home computing and the
    internet in part because of our deep cultural and
    constitutional reverence for free speech but also because of
    two laws passed by Congress in the last 1990s: the
    Communications Decency Act and the Digital Millennium Copyright
    Act.
        Both laws created safe harbors for infrastructure-building
    businesses. They protected companies that were building the new
    information superhighways from third party liability stemming
    from the actions of users on those highways. These safe harbors
    made the U.S. a friendly home for the leaders of the internet
    revolution. But today we are following, not leading.
        A young innovator dreaming of building the future of
    financial infrastructure would be best advised to leave the
    U.S. not because she can do it on the cheap in a foreign
    jurisdiction that will look the other way but simply because
    instead determining what the U.S. regulatory landscape demands
    of her is a Herculean undertaking.
        Indeed, between 53 States and territories and several
    independent Federal regulators, it's a task that would be much
    simpler if she was in the United Kingdom and could ask one
    regulator, the Financial Conduct Authority, for an opinion.
        In order to reestablish the U.S. as a leader we need to
    rationalize the chaos of financial services regulation starting
    with State-by-State money transmission licensing. Custodial
    businesses should be regulated but they should not need to
    repeat a licensing process 53 times over.
        These businesses are by virtue of the internet interstate
    in their scope of operations and they should have similarly
    scoped regulators to avoid costly compliance redundancies and
    guarantee uniform consumer protection.
        Congress should encourage the Office of the Comptroller of
    the Currency to offer Federal FinTech charters to custodial
    digital currency firms and Congress should also consider the
    creation of a new Federal money transmission license as an
    alternative to State-by-State licensing.
        We also need a safe harbor. In several States the
    definition of money transmission is broad and can be
    interpreted to require that noncustodial developers of the
    technology be licensed.
        It is not reasonable to mandate licensure from a
    technologist who helps build the networks but is not holding
    consumer valuables. That's like trying to stop speeding by
    requiring costly licensing for highway construction personnel.
    It doesn't make sense and it'll only mean that fewer highways
    get built.
        But amending over broad laws in every State is not a
    scalable approach. The commerce clause empowers Congress to fix
    this problem. Much as it did in the 1990s for internet
    infrastructure, Congress should craft a Federal block chain
    safe harbor for noncustodial developers.
        Open block chain networks are the pipes for our future
    economy. We want this infrastructure built here without
    unnecessary impediment and with reasonable protections for
    consumers.
        Innovation can be both permissionless and responsible but
    it will only happen in the U.S. if we take a unified national
    approach to regulating custodians and create a safe harbor for
    noncustodial developers.
        Thank you.
        [The prepared Statement of Mr. Van Valkenburgh follows:]
        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        Mr. Latta. Thank you very much for your testimony, and that
    concludes our testimony from our witnesses today. I will begin
    the questioning of our witnesses and I will recognize myself
    for 5 minutes.
        Ms. Hogarth, in your testimony you mentioned some of the
    less mature aspects of FinTech innovation like insurance
    products and block chain that have the potential to drastically
    improve consumers' lives.
        What are some of the emerging technologies that are most
    exciting to you?
        Ms. Hogarth. Thank you, Mr. Chairman.
        We see a lot of opportunity for disruption in the insurance
    arena and in insurance it's more than just what you think of
    as, you know, your house insurance, car insurance, health
    insurance.
        As we think about older Americans--and I will count myself
    in that--getting ready to approach retirement, thinking about
    dissaving and helping Americans begin to decapitalize and
    unsave the 401K and IRA money that they have in their
    portfolios, finding new ways to create pensions that are going
    to be lasting outside of perhaps what is traditionally an
    annuity system.
        So the insurance market is certainly ripe for disruption
    for the consumer products.
        Mr. Latta. Thank you.
        Mr. Van Valkenburgh, your group has focused on the block
    chain technologies or the distributed ledger technologies. Will
    you give the subcommittee some of the insights into what you
    think are on the horizon for the industry in the future?
        Mr. Van Valkenburgh. Thank you, Mr. Chairman.
        These are young technologies and as I said in my opening
    statement they are fundamental infrastructure. They are pipes.
        So many of the consumer-facing apps are still in their
    infancy and this is why I think we still see fairly little
    actual consumer adoption from normal Americans.
        However, what excites us most about the industry is that
    this infrastructure is open for others to build applications on
    top of.
        So, for example, a company could build an app that
    facilitates international remittances. The company designs the
    user interface so that it's friendly, it's useful, it's
    compliant with KYC requirements and has consumer protections
    baked in, as my colleague suggested.
        But rather than moving the money between the users via
    correspondent banking systems, the app uses digital currency to
    move value between the sender and the recipient.
        Now, the value moves faster in that system--an hour instead
    of three or more days--and the fees are potentially lower
    because there are not multiple correspondent banks in between.
        There is two things that are important to point out in that
    hypothetical. One is that the technology made the application
    more friendly for the user--lower fees, a smart phone
    application that makes sense to them--but second, that the
    technology, the open block chain network, made it easier for
    the business to get started.
        It lowered the barriers to entry for competition. Because
    previously they would have had to establish a banking
    relationship or multiple banking relationships with
    correspondent banks and several branch locations.
        But now they can simply build their consumer-facing app on
    top of existing open block chain infrastructure and smart
    phones.
        Mr. Latta. Thank you very much.
        Mr. Saade, in your testimony you focused, of course, on the
    FinTech innovation and in the last year what patterns or trends
    have you seen for new entrants that are out there?
        Mr. Saade. Thanks for the question.
        The exciting part about what's happening in financial
    services is that it's a confluence of events that have led to
    all of this happening almost at the same time.
        If you think about what the iPhone or the smart phone did
    to basically everything, there were a lot of capabilities to do
    that because there was no significant institutions that were
    divergent from a particular technology.
        In the case of financial services I agree with my colleague
    here that there's a lot of things we are starting to see in
    insurance technology.
        We are starting to see a lot of things in what's termed
    legal tech or reg tech, which is at the end of the day
    regulations are ones and zeroes just like any other bit of
    information, and there's ways to comply and better ensure that
    consumers and small businesses are safe.
        So there's a continuing amount of innovation across the
    spectrum.
        Mr. Latta. Thank you very much.
        And my time has expired and I now recognize for 5 minutes
    the gentlelady from Illinois, the ranking member of the
    subcommittee.
        Ms. Schakowsky. Thank you so much.
        Mr. Chairman, when I first saw the title of today's hearing
    I was really glad to see that we agree that there's room to
    improve the financial options currently available to consumers,
    and it's our job then to ensure that the American people have
    access to financial products that are fairly priced,
    innovative, and not abusive.
        But I'm sorry that I'm really distracted--or not, maybe not
    distracted--I want to bring into this room the fact that I
    think that we cannot do those things without an empowered
    Consumer Financial Protection Bureau, and today on the floor we
    are going to do a lot to undermine Dodd-Frank.
        I wanted to ask--let me say your name right so I can look
    at it here--Mr. Van Valkenburgh, you know, you seem to suggest
    a kind of new Federal regulatory scheme.
        You talked about the OCC getting involved. But it seems to
    me that the CFPB can play a role, too, in entering this arena
    and future arenas and having that institution in place is
    really important. What do you think?
        Mr. Van Valkenburgh. One role that the CFPB has already
    played is enforcing unfair and deceptive and potentially
    abusive acts and practices.
        This is a logical way, potentially, to regulate some of the
    entities in this space because it's an ex-postregulatory scheme
    rather than ex-anti.
        Our chief bugaboo, if you will, is the fact that companies
    need to get licensed in several States before operating, not
    necessarily that there aren't adequate watchdogs who can police
    their behavior once they're running.
        As far as creating a Federal hub for regulation, we are
    agnostic as to which agency takes on that authority. What we
    primarily want to see is coordination between the agencies
    because, as I remarked, things are much simpler in more unified
    governments like in the United Kingdom, where there's one point
    agency, the Financial Conduct Authority, that does all
    regulation.
        Ms. Schakowsky. Having all different rules across many
    different States, I get it.
        I wanted to ask Ms. Tet-tree-ault--how do I say it?
        Ms. Tetreault. Tetreault.
        Ms. Schakowsky. Tetreault. OK. Got it.
        I wanted to ask about the CFPB. I know Consumers Union has
    been an advocate and helped in our deliberations over that by
    altering the CFPB structure and funding.
        How does the Republican bill on the floor today undermine
    the agency's ability to do its job of protecting consumers in
    the space that we are talking about?
        Ms. Tetreault. So the CFPB has done amazing work for
    consumers, returning $12 billion to nearly 29 million Americans
    who have been wronged.
        It also provides an essential channel for getting consumer
    complaints resolved. They've helped hundreds of thousands of
    consumers who have complained to the CFPB get resolution with
    the companies who in many instances have ignored their
    complaints leading up to that time.
        There's an amazing 97 percent resolution rate on the
    complaints that come through the CFPB.
        So it would be a tremendous loss to consumers to have its
    capacities diminished and particularly as my colleague here to
    the left said about its UDAAP authority.
        So the Financial CHOICE Act would significantly reduce if
    not entirely eliminate in some instances the ability of the
    bureau to go after scammers and ripoff artists and that would
    be a huge loss for consumers.
        Ms. Schakowsky. Right, and I wanted to follow up on that.
    Bad financial actors that take a lot of money preying on
    seniors, on military members, on low-income population, why
    would they be disproportionately harmed then by the undermining
    of the CFPB?
        Ms. Tetreault. The Consumer Financial Protection Bureau has
    speciality agencies within it. There are speciality units
    within it that focus on particular problem areas where
    consumers have suffered incredible harm and that includes
    service members as well as older Americans.
        So these communities would really be devastated if the
    protections and the oversight that the Consumer Financial
    Protection Bureau offers are reduced, eliminated or otherwise
    redirected.
        Ms. Schakowsky. The CFPB rule also applies to digital
    wallets such as PayPal, right. So under the rule what
    requirements would be in place to protect users of digital
    wallets?
        Ms. Tetreault. Sure. So it's really some pretty basic
    safeguards: ensuring transparency and right to recredit and
    redress if errors or fraud are detected. So it's really the
    same safeguards that apply when you swipe a plastic card for
    debit purchase at point of sale.
        Ms. Schakowsky. Let me just say that I see this
    subcommittee as a place where we should be protecting the CFPB
    because we are designated to do consumer protection.
        Thank you. I yield back.
        Mr. Latta. The gentlelady yields back, and the Chair now
    recognizes for 5 minutes--you're on--the gentleman from
    Kentucky.
        Mr. Guthrie. Thank you very much. I appreciate that very
    much.
        First, Ms. Hogarth, the Financial Solutions Lab has some
    very interesting stories based on the start-ups you highlighted
    in your testimony, and I have a couple questions.
        One--and I will ask them both--how are you working with
    those companies to create any easier path to commercialization,
    and how many of the companies that won funding through your
    application processes are offering products to customers?
        Ms. Hogarth. So thank you very much.
        We work both with industry incumbents as well as start-ups
    and we have a network that provides introductions so that there
    are opportunities not only for partnering where, you know, the
    entities stay as individual entities but they're partners--
    third-party vendors to an incumbent--but we also provide access
    through additional venture capital and our network discussions
    to help them grow and build their business independently.
        And one of our companies in our first cohort, Prism, has
    been acquired by a company called PayNearMe. So there's a lot
    of different ways, you know, that you can think about
    partnering with a financial institution. You know, you can
    acquire it. You can partner with it. You can also just compete
    with it.
        But I think the reality is is that we really do want to see
    these ideas grow to scale and eventually the idea of
    partnerships is really, really important for the companies in
    our lab.
        Mr. Guthrie. Thanks.
        Mr. Saade, in your testimony you mentioned that not only
    does your firm invest in FinTech companies but you also have
    co-founded three companies. In your experience, what were the
    biggest hurdles launching your own start-ups and what was your
    experience working with regulators across the country?
        Mr. Saade. Starting a company is a leap of faith no matter
    what, regardless of having the ability to raise the capital,
    having an understanding of what the regulatory landscape is.
        Entrepreneurs overall, no matter in what industry in this
    country or around the world, really--it's a global ecosystem of
    entrepreneurs--need to be supported.
        So I think really the biggest hurdle to start the companies
    we started or for any entrepreneur to start companies is
    actually having an environment which supports that and there's
    no better place I can think of.
        There are pockets of innovation in which, for example, it
    was brought up that the FCA is a much easier place and
    situation to deal with.
        But the overall entrepreneurial ecosystem in the United
    States bar none is the best one--that there's a tug of war
    which policymakers always need to ensure that they're dealing
    with, and that is that if you're too easy on the capital
    formation side the consumers get hurt and if you pull too much
    on the other side you end up hampering innovation.
        So at the end of the day--that's a very long answer to say
    that taking a leap of faith is really what innovation and
    entrepreneurship is about with a backdrop that supports it.
        Mr. Guthrie. Thank you.
        And Mr. Van Valkenburgh, Coin Center testified before this
    committee last Congress when we took a look at digital currency
    and block chain technology.
        What can you tell us about how the landscape has changed
    for that technology in the last year, and we heard a lot about
    potential applications. Can you tell us about where you see the
    most promise in the short term?
        Mr. Van Valkenburgh. Thank you, Congressman.
        I think the biggest change has been the emergence of
    several new networks based off of the original Bitcoin open
    block chain technology.
        For example, I mentioned in my opening remarks Ethereum,
    which is a decentralized network for creating smart contracts.
        Smart contracts are a fancy word, basically, for more
    programmatic flows of funds through these networks. With
    Bitcoin, a transaction normally looks like I paid Mr. Chairman
    some Bitcoin.
        With a smart contract, we could give each of you a device,
    have that device provision you with a key of sorts, like a
    password, and quite literally have you vote on the flow of
    funds through the network.
        And unless somebody can penetrate each one of your devices
    and make you vote against your will, the movement of funds will
    have fidelity with your opinions when you make that vote.
        That is a fantastic innovation. It exists to some extent in
    Bitcoin under the name multi-sig transactions--multiple
    signatures from multiple people who are voting on the movement
    of funds.
        Ethereum makes programming those smart contracts even
    easier so you can imagine even more complicated decentralized
    applications being built by supremely bright people on top of
    those networks.
        Additionally, Bitcoin is a very transparent network. It's
    not very private because all of the transactions are fully
    auditable on the block chain.
        Another innovation that's recently emerged is a technology
    called Zcash built on scientific research that allows for more
    private but still fully verifiable block chains. That's also
    very exciting.
        Mr. Guthrie. Thank you. My time has expired. I yield back.
        Mr. Latta. Thank you. The gentleman's time has expired and
    the Chair now recognizes the gentlelady from New York for 5
    minutes.
        Ms. Clarke. Thank you, Chairman Latta, and to our ranking
    member, Jan Schakowsky, to our expert witnesses. Thank you for
    your testimony here this morning.
        As the FinTech industry has grown, a number of our new
    companies, not just banks, have begun offering financial
    products such as e-lending and electronic payments.
        The Consumer Financial Protection Bureau and the Office of
    the Comptroller of Currency have been active in trying to help
    these companies understand their regulatory responsibilities.
        In December of 2016, OCC proposed creating a special
    national bank charter for FinTech companies. State regulators
    and consumer groups including Consumers Union, however, have
    asked OCC to withdraw the proposal.
        Ms. Tetreault, the comments submitted to OCC consumer
    groups including yours expressed their concern that the
    proposed charter could preempt critical State consumer
    protections like caps on interest rates for loans.
        Can you expand on those concerns and if OCC does go forward
    with the new national charter, what are the baseline consumer
    protections that it needs to contain?
        Ms. Tetreault. Thank you.
        The OCC's FinTech charter or special purpose charter
    unfortunately would abrogate many of the State laws that are
    really there to protect consumers against predatory loans and
    so that is the primary concern that the advent of such a
    charter would create a race to the bottom as businesses south
    to find the lightest approach to oversight to them.
        And so we've really expressed strong concern about this
    proposal, really thinking that State regulators are in a much
    better position to supervise and examine these banks and also
    that the protections that States have put in place should be
    honored to protect their citizens.
        So it's really, you know, a concern about overriding these
    in many case very strong protections, although the protections
    vary greatly from State to State.
        So to your second question, if there were to be such a
    special purpose charter extended, it would be the same strong
    oversight that the States provide. It would include no
    preemption of these State protections.
        It would be extensive examination and then, of course, the
    safety and soundness of requirements that are so essential to
    ensuring consumer protection.
        Ms. Clarke. Drill down a little bit deeper on that and say
    how the OCC's proposed charter differs from existing bank
    charters and how they would be similar.
        Ms. Tetreault. So right now I would actually draw a greater
    contrast between the way that States supervise financial
    services, license financial services entities and why that's
    the preferable model.
        To say that you have some States like California and New
    York that really have extensive methods for examining the
    entities that they supervise.
        They can really go in there. They can see in a level of
    detail that perhaps might elude a Federal regulator. So we've
    seen instances in the lead-up to the housing crisis where
    federally regulated entities were made aware of problems, and
    action wasn't taken, and we know how that resulted in, you
    know, many millions of foreclosures and a financial crisis that
    nearly took down the entire economy.
        So there are some pretty grave concerns about having the
    Federal oversight that perhaps might not had the attention to
    detail, and that is I think the biggest contrast between what
    is done now and what might happen under this.
        Ms. Clarke. And do most FinTech companies currently offer
    their services independently or do they partner with banks or
    other traditional financial service providers?
        Ms. Tetreault. So it's really a mixed back in that regard.
    So you have guidance to help banks and financial service
    companies that are nonbanks partner together and there are
    pretty extensive rules of the road for ensuring consumer
    protection in that regard.
        You also may see start-ups who seek licensure within the
    States and you have some pretty successful examples and I will
    just cite one, which would be PayPal where they're able to do
    the work that they do and by pursuing these State licensees.
        So it can really be--you know, there also may be a start-up
    that happens within a State, and that's the first State that
    they seek out licensure, and so it's a mixed bag.
        Ms. Clarke. Mr. Chairman, I yield back.
        Mr. Latta. Thank you very much. The gentlelady yields back.
        And the Chair now recognizes the gentleman from West
    Virginia for 5 minutes.
        Mr. McKinley. Thank you, Mr. Chairman.
        One way that consumers access FinTech is through their
    smart phone and for many individuals in rural areas it's not a
    very reliable service.
        In West Virginia, the mountainous terrain limits that
    ability for people to have access. So I'm curious as to how
    FinTech companies are addressing the needs of rural areas as
    compared to those in more urban settings.
        Is there something that you're focussing on that you would
    recommend we look towards for addressing rural areas as
    compared to the urban centers?
        Don't all speak at once.
        Ms. Hogarth. So I will take a stab at that.
        Mr. McKinley. Thank you.
        Ms. Hogarth. I mean, I said that, you know, FinTech is
    necessary but not sufficient and there are a set of
    infrastructure issues that clearly need to be addressed, not
    just in the mountainous regions but in any rural area.
        And we should also add even in urban areas, you know, wifi
    is not necessarily ubiquitous or cost-free. And so for many
    low-income households accessing data plans is a really tough
    pull on their budgets.
        So in addition to sort of thinking through some of the
    issues that you heard today this is really a whole cloth
    because you're exactly right.
        There needs to be some sort of infrastructure program in
    place to be able to provide access to reliable high-quality
    broadband services whether that is a wired line, a fiber optic
    line or a wifi.
        Mr. McKinley. Thank you.
        Because I think far too often in this country we focus on
    our urban centers and our rural communities across this country
    are shortchanged on access and other opportunities whether it's
    health care, growth, water, sewer.
        I could go on with it. So I'm hoping that through these
    services how helpful these can be with our smart phone. We are
    still limiting a certain number of people.
        Mr. Saade, in your testimony you mentioned how many
    Americans are underserved by existing products and services to
    help them with their finances. But there's also been a
    discussion about the attention between bringing new innovations
    to market quickly and making sure consumers are protected
    because this is their financial health.
        So how has your firm attempted to address this tension and
    make sure that the consumers are getting safe, secure and
    innovative products?
        Mr. Saade. So one comment on your previous question. I
    sense that the digital divide actually knows no--the issues
    you're facing in West Virginia are not dissimilar to what you
    see in the South Bronx.
        Even though it's heavily populated--heavily populated
    areas, the digital divide actually affects underserved
    communities in different ways.
        So there's some threads across what you're seeing in the
    mountains of West Virginia with what you see in the canyons
    across the East River.
        When we look at businesses to invest in, we don't believe
    that regulatory arbitrage is a business model and in fact a
    couple of the principals, myself included, actually served in
    the Federal Government in the executive branch as actual
    regulators.
        So we are very cognizant of the fact that innovation has to
    be done responsibly, and a lot of innovation that we see,
    there's almost like a natural self-selection of people that
    approach us or we approach because they're doing innovative
    things in a way that doesn't harm consumers.
        So I don't think it's a binary choice. I think you can
    accomplish all of it. It's just a tug of war. It depends on
    where in the spectrum you want to fall. But innovation can be
    done very responsibly.
        Mr. McKinley. Thank you. I yield back.
        Mr. Latta. Thank you. The gentleman yields back the balance
    of his time.
        The Chair now recognizes the gentleman from Texas for 5
    minutes.
        Mr. Green. Thank you, Mr. Chairman and Ranking Member, for
    having the hearing today and as well for our witnesses to take
    the time to testify.
        FinTech has the potential to help not only entrepreneurs
    and investors but those who need financial help in their daily
    lives the most. Often the people with the least time and with
    the most things to juggle on day to day basis are those who
    come from less financially literate backgrounds.
        The help that FinTech can provide to the working class is
    especially important. Apps with the potential to help people
    pay their bills, improve their credit, provide guidance on how
    to distribute limited resources across many needs represent a
    welcome development, for one, from which Congress must work to
    provide the necessary regulatory framework.
        However, the testimonies of the distinguished witnesses
    also highlight the importance of consumer protections. Despite
    the potential benefits as consumers' financial data becomes
    available to an increasing number of service providers,
    consumers become more vulnerable to the theft and abuse of that
    data. They must have somewhere to turn in case that happens.
        I look forward to discussing on how the balance to the
    risks and rewards that FinTech can offer with witnesses.
        Ms. Tetreault, in your testimony you underline the
    importance of consumer protections when it comes to FinTechs
    and you lay out consumer safety guidelines which several types
    of FinTech service providers should adhere.
        With the CHOICE Act on the floor this week, what impact if
    any do you see this having on the ability of the Consumer
    Finance Bureau to implement and enforce these guidelines?
        Ms. Tetreault. Sure. So I think if the Financial CHOICE Act
    passes it would be devastating for consumers for a variety of
    reasons, specifically related to consumer harms.
        It gets rid of the monitoring function of the bureau and
    the market monitoring allows the CFPB staff to get a good
    insight into what's happening within various segments within
    financial services and meet with those industry leaders and
    service providers and also to monitor consumer complaints and
    concerns long before they become system issues or widespread
    problems for consumers.
        So that would disappear. You'd have the loss of the public-
    facing database, consumer conflate database that allows not
    only researchers but everyday people to go ahead and look and
    see where the issues are with particular service providers
    around particular products.
        It's searchable in many dimensions. There would be a loss,
    presumably, of the specialty offices within the bureau or at
    least those are made optional so you potentially lose Project
    Catalyst, which is an initiative from the bureau to take a look
    at innovation.
        With that you lose the convening that the bureau does for
    financial technology companies and providers. You lose the
    opportunity for a no-action letter which is----
        Mr. Green. I'm almost--I only get 5 minutes. We've heard
    today about FinTech's potential for offering financial service
    for the unbanked and underbanked populations, which tend to be
    lower income.
        But research shows that the majority of the people that are
    actually using FinTech products are wealthier customers. What
    needs to be done so that the unbanked and underbanked
    populations can also have full access to FinTech potential
    benefits and are there obstacles preventing these populations
    from using these traditional financial services because of the
    lack of access to these new financial products?
        Ms. Tetreault. So access to broadband is definitely an
    issue and one that's been discussed here because so many of
    these innovative products and services are reliant on a secure,
    sound, continuous internet connection. That, I would say, is a
    very strong hurdle.
        I think the other is one of the things that we've seen a
    lot is consumer concerns. So, you know, the stories that we
    hear back when we ask people, for example, why aren't you using
    mobile payments is they say, I'm worried about safety and
    security.
        And while the evidence may indicate that these services are
    quite safe, the consumer perception potentially was there
    because of these gaps that existed, for example, before the
    CFPB's final prepaid rule.
        So, you know, there is I think any number of things that
    stand in the way of consumers engaging with these services and
    concerns that can be addressed by appropriate safeguards.
        Mr. Green. I am almost out of my time. Last month, Energy
    and Commerce Democrats introduced the Lift America Act, a 21st
    century infrastructure package that includes $40 billion to
    expand access to broadband internet not only in rural areas but
    also in the urban areas like I represent.
        Thank you for your time, Mr. Chairman.
        Mr. Latta. Thank you. The gentleman yields back.
        And the Chair now recognizes the gentleman from Indiana for
    5 minutes.
        Mr. Bucshon. Thank you, Mr. Chairman.
        A question for anybody, really. I mean, technology is
    great. My older kids use Venmo. They don't have any cash,
    right. So we know that people are underbanked and unbanked now.
    What makes us optimistic that adding technology to that will
    substantially change that situation?
        Just a hypothetical because there are reasons why people
    don't have a bank or they're underbanked now, and it could be
    access to a local, you know, to a bank standing on the corner.
    But there are other, more complicated reasons why. And so when
    you add actually the--I'm just playing a little devil's
    advocate here--you add the technology on board, what makes us
    think that that will help? Be curious to--anyone.
        Ms. Tetreault. I will just--thank you--I will address that
    very briefly around faster payments. I will use faster payments
    as an example, as that's an area where the technology will need
    to move forward to bring us to real-time payment, and there are
    proposals out there.
        And how I can see that bringing in underserved consumers is
    that it allows for real-time information for better money
    management, and then there are potential aspects of the
    technology that would ensure that there wouldn't be an
    opportunity for things like surprise fees or overdrafts for the
    way that the payments actually work.
        So I see that. We know for a fact from consumers, due to
    extensive research, that it is surprise fees and overdrafts
    that often drive consumers out of the mainstream banking system
    and forces them to use, you know, more expensive products or
    rely on cash.
        So I see that particular area as a tremendous opportunity.
        Mr. Bucshon. OK. Yes.
        Ms. Hogarth. And I would add in addition to the faster
    payments piece that the ability of financial technology to give
    consumers a 360-degree picture of their finances is really,
    really important because a lot of times you're operating in
    one-off decisions when you don't really understand the
    interaction of the decision X with decision Y and financial
    technology and many of the apps now are really trying to help
    consumers get that fuller picture of their financial lives.
        Mr. Bucshon. OK.
        Mr. Saade. I was going to say that just one example that
    happens to be a relevant one here is that the biggest
    generation of Americans--76 million or something of them--
    typically would rather not step foot in any one of the 100,000
    or so, give or take, bank branches in the United States.
        So even though there's sort of a dark side of technology
    kind of making you anonymous, as we have seen in other
    industries----
        Mr. Bucshon. Oh, yes.
        Mr. Saade [continuing]. In the media recently, that sort of
    faceless ability enables you to access things with a lot less
    friction and the lack of friction leads to lower cost. So I
    think the question is not what but how.
        It's a very good question you ask but the--and if you look
    at it from a business perspective, 2 billion people are not
    getting banked around the world. That is a huge business
    opportunity.
        So there's a lot of people thinking about this exact issue,
    not just venture capitalists or the people here but people
    across the spectrum.
        Mr. Bucshon. OK.
        Mr. Van Valkenburgh. The only thing I would add is that the
    user interface matters a great deal with technology. Google was
    actually the fifteenth search engine thereabouts.
        There were several that tried to make the web accessible to
    people and help them find the information they wanted but
    simply didn't make it intuitive. It just didn't make sense to
    people when they tried to use it. Rapidly prototyping and the
    ability of new people to come in with a fresh idea of how to
    get people excited about their financial futures is very
    important and to the extent that open block chain networks
    create infrastructure that they can build on top of minimizing
    the costs of trying something new I think will see much more
    rapid consumer adoption of these new tools because they'll
    suddenly make sense when they're finally built by the right
    people had the right vision.
        Mr. Bucshon. Yes. My concern is that, what do you think
    will happen to more traditional ways that people access the
    banking system?
        Because, as you know, already technology is such where--
    say, for example, my parents, you know, who have gone to a bank
    for years and years. What happens when there's no longer a bank
    on the corner? So I think we need to think about that question
    also, and I'm all for technology.
        I think it's great. But to your point, we need to make sure
    that the services that are available are intuitive, are easily
    accessible not only to my sons who are in their 20s but to my
    in-laws and my parents who are in their 80s if we are going to
    backtrack a little bit on more traditional type service
    availability.
        Thank you. I yield back.
        Mr. Latta. Thank you. The gentleman yields back.
        And the gentleman from California is recognized for 5
    minutes.
        Mr. Cardenas. Thank you, Mr. Chairman.
        Once again, I appreciate the opportunity for us to have
    this hearing. This question goes out to any of the individuals
    who want to chime in and answer.
        Could you give some examples of how often is a bank account
    needed to participate in these technologies and count as a
    traditional bank account?
        Mr. Van Valkenburgh. Especially in the digital currency and
    open block chain space, despite the fact that the technology I
    described in some ways supplants the correspondent banking
    system, there will still be a need to onramp people into these
    new digital currency networks.
        So it will be very common for the company to have banking
    relationships that they process payments for and it will be
    necessary for the user to have a bank account that they can
    connect in order to exchange their dollars for digital
    currency.
        Unfortunately, many of the companies that are working in
    this very exciting space have had trouble getting and
    maintaining banking relationships because they're seen as a
    money-laundering risk.
        That is despite the fact that all of the companies
    operating in the U.S.'s exchanges are fully registered and
    compliant with anti-money laundering requirements from FinCEN.
        I think there is a bit of a cultural problem here where
    perhaps the examiners look at this as a fringe technology that
    should simply be ignored and banks take a derisking approach.
        I think that approach may be misguided because we want
    these companies in the regulatory system because if these
    technologies exist outside of the regulatory system we'll
    simply have less information about what people are doing with
    them and will not allow them to flourish as hubs for innovation
    in these services.
        Mr. Cardenas. OK. Well, Mr. Van Valkenburgh, how do you
    open block chain networks? How does open block chain networks
    encourage financial inclusion and diversity in the financial
    marketplace?
        Mr. Van Valkenburgh. So the primary mechanism, I think, is
    allowing for the rapid prototyping of new tools that can be
    intuitive for users and meet their goals.
        So transactions can be faster when their back end is
    running through an open block chain network. It can be cheaper
    for the customer and it can also be cheaper for the business to
    try new approaches.
        So I think in that competition you find more likely there
    will be an emergence of apps and services that speak to
    underserved communities, make them want to use those
    technologies and make it easier for them to use those
    technologies safely.
        Mr. Cardenas. OK. Thank you.
        Ms. Tetreault, are there occurrences of deceptive practices
    in the financial industry that consumers should be aware of,
    and if there are, what role can Congress play in helping to
    alleviate that issue?
        Ms. Tetreault. There are many abusive practices.
    Fortunately, we've seen a tremendous enforcement of consumer
    financial protection laws by the Consumer Financial Protection
    Bureau. So that's where you have these 29 million Americans
    getting back $12 billion in relief.
        In terms of existing problems, having a strong cop on the
    beat is really essential to ensuring the consumers are
    protected, and we are very eager to see the strength and
    integrity of the Consumer Financial Protection Bureau ensured
    by keeping a strong leadership structure, no attacks on funding
    and maintaining its singular focus on consumer financial
    protection as opposed to dissipating and across a number of
    Federal regulators.
        Mr. Cardenas. So having a cop on the beat is a good thing?
        Ms. Tetreault. Absolutely, and I think, you know, you can
    see every day it seems that there's another example of a
    financial institution or financial service provider behaving
    badly and to see them held to account not only holds that
    business to account but it sets an example so that other
    services providers know that they need to mind their p's and
    q's.
        So it's incredibly important to consumers to have this cop
    on the beat, or as we like to refer to it, consumer watchdog so
    that folks, you know, are protected and make sure that there
    are not only protections in place because of the rulemaking
    authority but also people watching out to ensure that there are
    safe financial service products available.
        Mr. Cardenas. I mentioned earlier in my opening statement
    about the opportunity or idea that perhaps this opportunity
    could give unbanked individuals and households an opportunity
    to get involved in access to capital and financial stability.
        What does this technology bring to bear when it comes to
    underwriting and giving someone an opportunity to get access to
    capital versus the old brick and mortar, you know, old-
    fashioned underwriting methods?
        Ms. Tetreault. So the one thing I would say that we do see
    a lot of attempts from service providers to quantify the
    creditworthiness of consumers. I would just raise two quick
    concerns.
        In many instances there's a lack of transparency and then
    there's the concerns around the way that data is collected and
    used and would urge service providers to be considerably more
    transparent in the way that they quantify consumers.
        Mr. Cardenas. Thank you. Yield back.
        Mr. Latta. Thank you. The gentleman's time has expired, and
    the Chair now recognizes for 5 minutes the gentleman from
    Illinois.
        Mr. Kinzinger. Thank you, Mr. Chairman. Thank you all for
    being here today. This is a very important hearing. This
    committee having jurisdiction over consumer affairs, I'm very
    pleased that we are continuing to shed light on the importance
    of financial technology and the benefits it can provide.
        FinTech is improving the speed, convenience, efficiency and
    accessibility of financial information for consumers. At last
    Congress I introduced a resolution with Congressman Cardenas
    highlighting the potential positive impact technology can have
    on a consumer's financial health and expressing the sense of
    Congress that there should be a single national strategy to
    ensure the development of FinTech.
        In many cases we see out here technology always leads
    Congress and Government, and we basically kind of wake up and
    see what's happening and then have to figure out a strategy to
    deal with it.
        So some of you have already answered to an extent this
    question but I just want to ask it of all of you and I will
    start with Mr. Van Valkenburgh because he has the coolest last
    name on the committee or on the panel. No offense to the rest
    of you.
        But what are the issues and trends that we in Congress need
    to watch for to ensure that consumers benefit from innovation
    in a responsible and a secure way?
        Because it sounds like developing the regulatory framework
    can obviously be a huge challenge. But this access to the
    financial account is very serious and should be treated as
    such. So I'd appreciate all your thoughts. I will start with
    you, sir.
        Mr. Van Valkenburgh. So I think the key distinction to be
    made is between technologists who are building these
    technologies and holding other people's value, playing that
    custodial role, and technologists who are simply building the
    future infrastructure, really, the pipes for the future
    economy.
        Making that distinction is key because I think you're
    absolutely right that we need a unified approach to regulating
    those custodians to make sure consumers are protected and we
    very much appreciate your and Congressman Cardenas' resolution
    emphasizing that point.
        But it's also very important that people who are building
    the fundamental infrastructure are not swept up in a burdensome
    regulatory regime that isn't aimed at the risks they create
    because they don't take custody, because they don't actually
    hold other people's valuables.
        Mr. Kinzinger. That's interesting. OK.
        Ms. Tetreault. I would say first the importance of strong
    rules of the road as exhibited with the Consumer Financial
    Protection Bureau's final prepaid rules.
        So having that extend to digital wallets that hold funds I
    think is a great example of how regulations can be in place at
    the Federal level.
        And then to the question about any sort of streamlined
    oversight is so long as the State consumer financial protection
    rules are not preempted, you know, there's opportunity there.
        Mr. Saade. Yes, we've been, obviously, very focused on
    lending and kind of the debt side of the balance sheet. But
    just to highlight that, there's a whole other side of the
    balance sheet which is equity and the SEC, for example--I'm
    just going to answer it this way--tried a lot of really
    interesting things to allow for common citizens to participate
    in let's call them high-value potential investments and for
    otherwise companies raising capital or projects raising capital
    or people raising capital--not loans but actual capital--is
    Title 3 of the Jobs Act, and they worked pretty diligently to
    get it done, but what it highlighted was that, as they were
    going through that, all of the States' regulatory entities for
    securities were doing their own fixes, and they were doing them
    only with the hope that the SEC would then work with the
    preemption.
        So I think that the jobs all of you have is very difficult.
    But if you put things into the perspective of what benefits
    consumers respond to, you end up in a place that actually is
    solutions that could work.
        Mr. Kinzinger. Thank you.
        Ms. Hogarth, I have another question for you, and since
    time is limited I will just ask that.
        You discussed seeing competition in the FinTech space
    around savings products and financial health for employees
    where there's been little innovation in the past.
        Can you talk a little further about what changed in that
    environment that spurred innovation and competition?
        Ms. Hogarth. Thank you.
        Breaking into the employer channel is very, very difficult,
    and one of the things that we have found that is very, very
    helpful is to just do proof of concepts and pilots.
        And by having somebody be bold, to go first and to try out
    something gives other people confidence that they too can do
    it.
        This actually gets to my answer to your original question,
    which is thinking about how bright lines used to work when we
    had a nice segmented marketplace, but there is significant
    blurring of lines right now.
        And thinking about in terms of trends, how we regulate in
    the 21st century not so much with specific rules but perhaps
    with principles and guidelines. For example, thinking about
    consumer outcomes as the metric of success, not whether or not
    your disclosure is in 18 point font.
        Mr. Kinzinger. Very good. Very interesting.
        Well, I thank all of you for your participation. Well, I
    thank all of you for your participation. I will yield back my
    negative 37 seconds, Mr. Chairman.
        Mr. Latta. The gentleman yields back.
        And the Chair now recognizes the gentleman from New Jersey
    for 5 minutes.
        Mr. Lance. Thank you very much, Mr. Chairman.
        My district in New Jersey has a lot of constituents who
    work in the financial services industry either in New Jersey or
    in New York itself.
        Are the innovations in FinTech being driven predominantly
    by start-ups or by the more traditional banking institutions
    and are there partnerships between the two--between start-ups
    and more traditional banking institutions--and I defer to all
    members of the panel.
        Mr. Van Valkenburgh. Some very fruitful partnerships have
    emerged even in the open block chain space. I think in the
    early days many people believed Bitcoin was just a strange
    internet phenomenon. But that has radically changed as block
    chains become a popular almost buzzword in Wall Street and
    elsewhere.
        One particularly exciting partnership to highlight is the
    partnership between Ethereum, Zcash and innovators at JPMorgan
    to build a block chain that will be flexible for smart
    contracts like Ethereum's open block chain network that will
    have some privacy elements taken from the Zcash network and
    that will serve potentially heavyweight enterprise type
    clients.
        Mr. Lance. Thank you. Others on the panel, would you like
    to comment? Yes.
        Ms. Hogarth. So, obviously, JPMorgan Chase is clearly
    involved in trying to stimulate innovation not only outside of
    the bank but certainly within it as well and there are a number
    of other incumbent banks who have their own innovators hubs.
        And I think there are a number of other entities like CFSI
    who are trying to stimulate in the start-up community. So I
    think it is a both end, Congressman.
        Mr. Lance. And are these more traditional forms of banking
    the coordination--are they the American banks or is this also
    true of banks in other parts of the world?
        Ms. Hogarth. Well, certainly, we've seen a lot of
    innovation across the globe. I think we need to look to our
    colleagues in Australia, Singapore, Hong Kong, beyond the U.K.
        The U.K. is always getting lifted up as the--as the
    prototype here. But there are a lot of really great innovations
    coming out.
        But I would agree with Mr. Saade that the U.S. is, you
    know, bar none the leader in this arena.
        Mr. Lance. I, obviously, have a bias toward New York as
    opposed to London or Shanghai or Singapore. Is there something
    that we should be doing here in Congress to make sure that we
    are preeminent in FinTech?
        Mr. Van Valkenburgh. I would say, quickly, that for
    noncustodial developers of these technologies--these open block
    chain networks--the State-by-State money transmission framework
    is a bit of a maze to navigate.
        They are really not money transmitters. They build pipes.
    They don't push the water through the pipes. But they'll have
    to get an opinion from 53 different States and territories from
    the regulator in that jurisdiction that says that they're safe
    and they won't be on the hook for unlicensed money
    transmission, which carries a $5,000--well, no, 5 years in jail
    and potentially multi-thousand-dollar fines.
        So those are very real liabilities and I think they
    frighten people away to some extent from building their
    infrastructure here in the U.S.
        Mr. Lance. This is always a challenge regarding our dual
    sovereignty. What would you recommend that we do? Because we do
    have dual sovereignty in this country.
        Mr. Van Valkenburgh. Yes, and I think the States have a
    valuable role to play as far as licensing custodians of other
    people's digital currency.
        However, I think we do need a Federal safe harbor that
    would basically clarify the legal landscape across all the
    States saying that noncustodial businesses should not need to
    be licensed.
        Mr. Lance. Are there others on the panel who have an
    opinion on that? Yes.
        Mr. Saade. I'm going to take a little bit of a different
    angle and that is something that the Federal Government has
    done for decades is invest in extremely basic seed money and
    basic R&D science and development, which at the end of the day,
    after Defense uses the technology or whatever the technology is
    being used for, the private sector comes in and innovates on
    top of that.
        So one thing I think that, irrespective of are you
    developing clean energy technology or a cybersecurity thing
    that could be applied here or anywhere else to protect our
    borders, that's something the Federal Government can do and is
    the only entity that can do it--spend significant money looking
    into the future.
        Mr. Lance. Thank you. This is a very interesting and
    important topic and I hope that the Commerce Committee takes
    the lead on this issue as we have taken the lead in so many
    areas and it's a very distinguished panel.
        Thank you, Mr. Chairman.
        Mr. Latta. Thank you very much. The gentleman yields back
    the balance of his time.
        And at this time, the Chair recognizes the gentleman from
    Mississippi, the vice chairman of the subcommittee.
        Mr. Harper. Thank you, Mr. Chairman, and thanks to each of
    you for being here.
        Ms. Hogarth, I will start with you, please. The number of
    companies applying to be a part of the Financial Solutions Lab
    is remarkable: 358 for this upcoming group of companies.
        In your testimony you mentioned three key trends from that
    applicant pool, one of them being companies focused on products
    subject to complex regulatory oversight. Understanding that the
    finalists have not been announced yet, can you give us some
    examples of what sorts of services might fall in this category?
        Ms. Hogarth. Sure. You know, just as consumers' lives are
    not sort of unidimensional, the products that our lab companies
    develop are cut across traditional financial services products.
        They're not just a transaction card. They're not just a
    credit card. They're not just a savings product. They feature
    some of those multiple features.
        In our last cohort, we had a company that worked with
    freelance workers. We had a company that was in a loan
    servicing arena, and we had a very interesting company called
    Remedy that looks at medical bills and errors on medical bills
    and how do you help consumers understand what's in their bill
    and protest any duplicative charges, things like that.
        That company actually saved their customers about a
    thousand dollars a year in misbilling on medical products.
    That's not a bank account. That's not a stock or a bond or a
    mutual fund.
        It's not an insurance product. And so there are these kinds
    of really complex kinds of financial issues that consumers face
    where it doesn't fit neatly into a regulatory box.
        Mr. Harper. OK. Thank you.
        Mr. Valkenburgh, you know, we understand that innovations
    in the financial industry have incredible potential to offer
    great benefits to consumers and we are also mindful of consumer
    protections and, of course, privacy concerns.
        Can you speak to the role the FTC can play to ensure the
    latter?
        Mr. Van Valkenburgh. I'm sorry, Congressman. That was the
    FTC?
        Mr. Harper. Yes.
        Mr. Van Valkenburgh. The FTC plays a valuable role
    enforcing unfair and deceptive acts and practices somewhat
    mirrored by the CFPB's authority there.
        However, I think they play a valuable with respect to these
    open block chain networks in that many of the applications that
    people build on these networks will not be custodial and, as I
    suggested, should not therefore be regulated as money
    transmitters.
        You might then ask OK, well, who's going to check their
    code as a regulator, make sure that the app does what it says
    even if the money is not being held by the app designers.
        Unfair and deceptive acts and practices have a long track
    record in making sure that people build their tech right on the
    internet for nonfinancial Web site and I think the FTC can
    continue to play that role with respect to these new open block
    chain networks.
        Mr. Harper. You know, in your testimony you also talked
    about digital assets outside of digital currencies, of course.
    Can you help us understand exactly what those digital assets
    could be, and help me visualize what the future looks like if
    this technology can develop?
        Mr. Van Valkenburgh. Absolutely. So you can think of these
    things as bearer instruments and the bearer instrument we are
    most familiar with is, of course, cash. It's a way of doing
    peer to peer money transfer.
        But there are other bearer instruments in our real world.
    There's tokens for a fairground. There's tickets for a concert.
    There's vouchers for certain goods and services that won't be
    used for other goods and services.
        One particularly exciting network that's being developed is
    called the Interplanetary File System, which I'm really glad I
    get to say here in the subcommittee.
        That is a decentralized cloud storage network that would
    allow people to just use the internet to store files without
    contracting with one or another company like Amazon or Dropbox.
        The way that the files would be stored would be encrypted
    for privacy and then they'd be verifiably stored at different
    places by people running computers who are rewarded for
    providing that storage with a voucher, Filecoin, that can only
    be spent on buying storage.
        Mr. Harper. I mean, it's incredible to comprehend and I'm
    so glad you got to use that phrase, too. That's very good.
        I see my time is almost up so with that I will yield back.
        Mr. Van Valkenburgh. Thank you, Congressman.
        Mr. Latta. Thank you. The gentleman yields back the balance
    of his time, and the Chair now recognizes the gentleman from
    Florida for 5 minutes.
        Mr. Bilirakis. Thank you. Thank you, Mr. Chairman. I
    appreciate it very much and I want to thank the panel for their
    testimony today.
        I will start with Ms. Hogarth. Maybe I mispronounced that.
    I apologize. Hogarth.
        In your testimony you talk about the Financial Solutions
    Lab which helps start-ups focused on improving consumers'
    financial health and outline a few companies.
        One of those companies, Digit, uses an algorithm to help
    people automatically save money without having to move the
    money themselves. Would you, again, tell us more about how they
    made it to your program and what their experiences have been so
    far?
        Ms. Hogarth. So they made it to our program by--once you
    apply to our program, there is a series of evaluations that we
    do. A number of, you know, like, sort of, is this really
    helpful to consumers. CFSI bases a lot of our work on our
    compass principles, which are to build inclusion, build trust,
    promote success and create opportunity.
        And so we always ask people ourselves how much does this
    company help with inclusiveness, trust, opportunity and
    success.
        We do financial due diligence so we look at the business
    model of the company and we also do sort of a--what I will call
    a gut check in is this actually going to improve the financial
    health of U.S. households.
        Mr. Saade's company has helped us in the past in reviewing
    so we are not just looking at these ourselves. We have a number
    of outside and expert reviewers including consumer advocacy
    organizations.
        The company Digit has grown substantially over time. Most
    of the companies in our cohort, our labs, have grown. As a
    matter of fact, they now reach a total of about 10 million U.S.
    households, which is 10 times what they were when they joined
    the program in the beginning.
        So it is really, I think, on the whole the companies find
    it a very positive experience.
        Mr. Bilirakis. OK. Thank you very much.
        This question is for the panel. We'll start with you, Ms.
    Hogarth, if you wish. Many individuals own and run small
    businesses. These businesses power---they are a major part of
    the economy--obviously, jobs, financial well-being. How is
    FinTech and the innovation you are seeing in this space going
    to help small businesses find capital, reduce paperwork or
    filing costs or any other examples you can share? We'll start
    of with you, please.
        Ms. Hogarth. Sure. Well, I think that one of the things
    you've seen in the market over the last several years is new
    business models.
        The marketplace lenders and other kinds of opportunities
    for small businesses to get access to capital is really, really
    important and when we are talking about access to capital you
    have to remember that financial institutions--the incumbent
    financial institutions often don't want to make that $25,000
    loan.
        They want to make the $250,000 loan or the $250 million
    loan. So having an opportunity to serve the market that the
    really small business guy needs--the food truck guy, the guy
    that just needs a pizza oven or a dentist chair--those become
    really, really important.
        Mr. Bilirakis. That's good. Anyone else, please?
        Mr. Saade. Yes. I would say that 30 million or so U.S.
    small businesses, half of them, when you're looking to give
    them credit, it's actually a person credit.
        So at the end of the day, a lot of these small businesses
    actually are basically personal guarantees and all this stuff.
        So that's one thing is that helping consumers access credit
    means that they can start these micropreneurial businesses.
        The other thing is the, like she was saying, has to do with
    the size. Typically, because pools of capital have become so
    big, especially banks and things of that nature, they don't get
    out of bed for anything less than some big number.
        So there's a huge swath of underserved small businesses not
    for any macabre reason other than it doesn't make any business
    sense. So a lot of these innovations actually label you to
    scale the ability to deliver capital to these tiny pipsqueak
    companies which, as you said, are the beating heart of our
    economy. So it's critical to small businesses.
        Mr. Bilirakis. Very good. Would you like to add something?
        Ms. Tetreault. If I may, I just would want to emphasize
    that micropreneur is another thing that can be incredibly
    important is receipt of payment and that faster payments can
    really enable receipt of those funds so long as banks are held
    to make those funds available to consumers upon receipt. The
    gap needs to be closed.
        Mr. Bilirakis. Very good. Thank you.
        Mr. Van Valkenburgh. I would simply echo the rest of the
    panel saying that the reduction in costs of provision of these
    services and potentially the reduction in costs of having a
    robust in order to discover creditworthiness are things that
    open block chain networks can deliver on by streamlining the
    pipes in between, you know, persons, small businesses, big
    companies and making trust and verifiability easier between
    those parties.
        Mr. Bilirakis. Very good. My time has expired, Mr.
    Chairman. I yield back. Thank you.
        Mr. Costello [presiding]. Gentleman yields back. I will
    recognize myself for 5 minutes.
        Mr. Van Valkenburgh, I have a block chain company in my
    district in Berwyn, Pennsylvania--AlphaPoint--who prior to this
    hearing echoed much of the details that you shared today. In
    fact, they're doubling the size of their team, and they expect
    that trend to continue.
        Preliminarily, I'm curious. When we talk about block chain
    technology and job creation and GDP growth, is block chain
    technology creating new jobs or displacing old jobs?
        Mr. Van Valkenburgh. I think that's an excellent question.
    I come from a legal background, and when the term ``smart
    contracts'' started floating around, everyone started
    suggesting that, well, we'll be able to get rid of the lawyers,
    that's great.
        I think the reality is that's simply either too optimistic
    or foolhardy. Really, what you end up seeing is retraining.
        A lawyer, for example, in this space should now learn how
    to code. They should learn how to write a contract that is not
    only embodied in legal terms in written language but also
    potentially embodied in computer code that runs on top of a
    decentralized network.
        So I don't think this leads to substantial job losses. I
    think it does lead to challenges with retraining and I think
    education and efforts to make sure that people are aware of how
    things are changing are important to that end.
        Mr. Costello. I discerned a little bit of disagreement on
    the panel on the issue of FinTech charters, and so I first
    wanted to ask you this question and then open it up to those
    who agree, disagree or maybe have a slightly different take.
        You used an interesting phrase--issue of permissionless
    innovation versus responsible regulation. I think that's what
    you characterized it as, and I get what you're getting at
    because I think there's always that tension when we talk about
    innovation between making sure that regulatory barriers don't
    get in the way.
        At the same point in time, you don't want innovation to
    sort of take advantage of an outdated set of rules or laws that
    creates victims and I think that that's what we are really
    focussing on when you talk about FinTech charters and this
    issue writ large.
        The question that I have for you on FinTech charters is,
    Why do you think that they're needed versus why could it not
    just be being a little bit additive to the existing regulatory
    or legal framework which already exists?
        Mr. Van Valkenburgh. So under existing----
        Mr. Costello. It's a little thing, and it's kind of a big
    step. I would----
        Mr. Van Valkenburgh. Yes. Thank you, Congressman.
        I think under existing regulatory structures in general if
    you want a unified Federal regulator you're going to need to be
    what we traditionally consider a bank.
        You're going to need to take deposits, make loans and maybe
    do check paying or payments. If you don't want to do deposit
    taking and maybe if you don't even want to do loans--you just
    want to do payments--you have no choice for a unified Federal
    regulator. You will have to go State by State and get money
    transmission licensing.
        Now, that is a severe barrier to innovation from a
    permissionless innovation standpoint because you're going to
    have to have 53 conversations across the States and territories
    and explain, well, in many cases what Bitcoin is and that is a
    difficult conversation to have with a State regulator.
        Mr. Costello. Right.
        Mr. Van Valkenburgh. Now, they may be on board with what
    you're proposing long-term but it's a lot of legwork. Now, the
    alternative would be can I get one Federal regulator and I
    think the OCC's FinTech charter presents an opportunity for
    that because they've suggested that they're willing to charter
    banks or, you know, Federal banks who do not do deposit taking,
    who only do payments or only do lending.
        I would add that the controversial nature of the charter
    with respect to some consumer groups I think often focuses on
    aggregation or preemption of State limits on interest rates.
    This is not an issue that we take a position on.
        At Coin Center, we are primarily concerned with payments
    companies getting Federal charters, not lenders.
        Mr. Costello. And I don't see what--I mean, you can have
    preemption, but it doesn't mean everything is preempted.
        Mr. Van Valkenburgh. Precisely.
        Mr. Costello. So I tend to see the argument your way there.
    Others?
        Ms. Tetreault. I would emphasize that it is the preemption
    of those lending caps that raises a particular concern and then
    there also is a question about whether or not there will be
    enough oversight in particularly examination and supervision.
        And then there are the concerns around, obviously, the
    safety and soundness requirements. I think also one other piece
    of it is when it comes to information sharing that there are
    tools available at the State level that may not exist presently
    at the Federal level. So that would need to be addressed as
    well.
        Mr. Costello. But safety, soundness, oversight--could you
    make the argument, though, that given the sophistication of
    this that that might be done better at the Federal level but
    you wouldn't preempt issues such as interest rates, et cetera?
        Because I understand State banking law, but on some of this
    stuff it just strikes me that preemption might be the way to
    not have innovation be hampered by State patchwork.
        Ms. Tetreault. I understand around the duplicative efforts
    and the concerns there and, again, that could be something that
    is more streamlined with a national licensing systems.
        I would not rule that out provided that there are those
    essential safeguards in place and no preemption of those
    lending caps in particular.
        Mr. Costello. Anyone else?
        Ms. Hogarth. I would just like to point out that I have a
    driver's license from the State of Virginia and it lets me
    drive anywhere across the United States.
        And I recently drove in South Africa on the left. So go
    figure. But I still have to obey the State speed limits, and I
    think there's an interesting analogy there.
        Mr. Costello. Thank you.
        Seeing there are no further members wishing to ask
    questions for the panel, I would like to thank all of our
    witnesses again for being here today.
        Before we conclude, I would like to include the following
    documents to be submitted for the record by unanimous consent:
    a letter from Electronic Transactions Association, a letter
    from Competitive Enterprise Institute, a letter from Kaspersky
    Lab, a letter from Intuit.
        [The information appears at the conclusion of the hearing.]
        Mr. Costello. Pursuant to committee rules, I remind Members
    that they have 10 business days to submit additional questions.
        Ms. Schakowsky. Without objection.
        Mr. Costello. Very good. And I ask that witnesses submit
    their response within 10 business days upon receipt of the
    questions. Subcommittee is adjourned.
        [Whereupon, at 11:55 a.m., the committee was adjourned.]
        [Material submitted for inclusion in the record follows:]

                 Prepared statement of Hon. Michael C. Burgess

        Good morning. I want to thank Chairman Latta for holding
    this hearing today. When I was chairman of the Commerce,
    Manufacturing, and Trade Subcommittee we held a hearing on
    mobile payments that provided valuable insight into the ways
    consumers pay for goods and services using financial
    technology, or FinTech.
        FinTech provides numerous opportunities for individuals who
    are unbanked, underbanked, or simply looking for banking
    alternatives to access financial services. Advantages of
    FinTech include faster receipt of payments, improved access to
    wealth-management services through broad data acquisition and
    analysis capabilities, increased access to lines of credit and
    cryptocurrencies, and accountability through auditable,
    permissionless, distributed ledgers like blockchain networks.
        One of the reasons FinTech products and services have
    continued to develop is the desire for innovative solutions to
    common financial needs. You can now split a check or buy an
    online item with the press of a button on a mobile device, all
    without thinking about directly involving a banking
    institution.
        In addition, FinTech provides advanced tools to aid
    individuals with financial planning and decision-making where
    such services previously did not exist to such a granular
    level. This capability is especially important for individuals
    who need exact guidance on how to overcome debt or increase a
    savings account balance.
        While FinTech has successfully developed solutions for
    alternative access to financial services, for it to continue
    meeting the needs and desires of consumers it must remain free
    of burdensome and disparate laws and regulations. Congress
    should evaluate ways to hold providers of products and services
    accountable without holding them back from further innovation.
        The maturation of the FinTech industry is a step in the
    right direction for incorporating the unbanked and underbanked
    into the economy as well as providing alternatives for
    traditional financial services. I look forward to learning more
    about this industry, and its barriers to entry, from our
    witnesses today. Thank you.

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