    [House Hearing, 118 Congress]
    [From the U.S. Government Publishing Office]

                         FINANCIAL INSTITUTION-FINTECH
                      PARTNERSHIPS: LEVERAGING THIRD-PARTY
                        RELATIONSHIPS TO INCREASE ACCESS
                             TO FINANCIAL SERVICES

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

                                 FIELD HEARING

                                   before the

                           SUBCOMMITTEE ON FINANCIAL

                       INSTITUTIONS AND MONETARY POLICY

                                     of the

                        COMMITTEE ON FINANCIAL SERVICES

                         U.S. HOUSE OF REPRESENTATIVES

                        ONE HUNDRED EIGHTEENTH CONGRESS

                                 SECOND SESSION

                                   __________

                                 JULY 12, 2024

                                   __________

                               Serial No. 118-103

           Printed for the use of the Committee on Financial Services

                     [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

                                www.govinfo.gov

                                   ______

                     U.S. GOVERNMENT PUBLISHING OFFICE

    56-908 PDF                WASHINGTON : 2026

                     HOUSE COMMITTEE ON FINANCIAL SERVICES

                   PATRICK McHENRY, North Carolina, Chairman

    FRENCH HILL, Arkansas, Vice          MAXINE WATERS, California, Ranking
        Chairman                             Member
    FRANK D. LUCAS, Oklahoma             SYLVIA R. GARCIA, Texas, Vice
    PETE SESSIONS, Texas                     Ranking Member
    BILL POSEY, Florida                  NYDIA M. VELAZQUEZ, New York
    BLAINE LUETKEMEYER, Missouri         BRAD SHERMAN, California
    BILL HUIZENGA, Michigan              GREGORY W. MEEKS, New York
    ANN WAGNER, Missouri                 DAVID SCOTT, Georgia
    ANDY BARR, Kentucky                  STEPHEN F. LYNCH, Massachusetts
    ROGER WILLIAMS, Texas                AL GREEN, Texas
    TOM EMMER, Minnesota                 EMANUEL CLEAVER, Missouri
    BARRY LOUDERMILK, Georgia            JAMES A. HIMES, Connecticut
    ALEXANDER X. MOONEY, West Virginia   BILL FOSTER, Illinois
    WARREN DAVIDSON, Ohio                JOYCE BEATTY, Ohio
    JOHN W. ROSE, Tennessee              JUAN VARGAS, California
    BRYAN STEIL, Wisconsin               JOSH GOTTHEIMER, New Jersey
    WILLIAM R. TIMMONS, IV, South        VICENTE GONZALEZ, Texas
        Carolina                         SEAN CASTEN, Illinois
    RALPH NORMAN, South Carolina         AYANNA PRESSLEY, Massachusetts
    DANIEL MEUSER, Pennsylvania          STEVEN HORSFORD, Nevada
    SCOTT FITZGERALD, Wisconsin          RASHIDA TLAIB, Michigan
    ANDREW R. GARBARINO, New York        RITCHIE TORRES, New York
    YOUNG KIM, California                NIKEMA WILLIAMS, Georgia
    BYRON DONALDS, Florida               WILEY NICKEL, North Carolina
    MIKE FLOOD, Nebraska                 BRITTANY PETTERSEN, Colorado
    MICHAEL LAWLER, New York
    ZACHARY NUNN, Iowa
    MONICA DE LA CRUZ, Texas
    ERIN HOUCHIN, Indiana
    ANDREW OGLES, Tennessee

                        Matthew Hoffmann, Staff Director

                                     ------

           SUBCOMMITTEE ON FINANCIAL INSTITUTIONS AND MONETARY POLICY

                         ANDY BARR, Kentucky, Chairman

    BARRY LOUDERMILK, Georgia, Vice      BILL FOSTER, Illinois, Ranking
        Chairman                             Member
    BILL POSEY, Florida                  AYANNA PRESSLEY, Massachusetts,
    BLAINE LUETKEMEYER, Missouri             Vice Ranking Member
    ROGER WILLIAMS, Texas                NYDIA M. VELAZQUEZ, New York
    JOHN W. ROSE, Tennessee              BRAD SHERMAN, California,
    WILLIAM R. TIMMONS, IV, South        GREGORY W. MEEKS, New York
        Carolina                         DAVID SCOTT, Georgia
    RALPH NORMAN, South Carolina         AL GREEN, Texas
    SCOTT FITZGERALD, Wisconsin          JOYCE BEATTY, Ohio
    YOUNG KIM, California                JUAN VARGAS, California
    BYRON DONALDS, Florida               SEAN CASTEN, Illinois
    MONICA DE LA CRUZ, Texas
    ANDREW OGLES, Tennessee

                             C  O  N  T  E  N  T  S

                                  ----------

                             Friday, July 12, 2024
                               OPENING STATEMENTS

                                                                       Page
    Hon. Andy Barr, Chairman of the Subcommittee on Financial
      Institutions and Monetary Policy, a U.S. Representative from
      Kentucky.......................................................     1

                                   WITNESSES

    Mr. Kirk Chartier, Chief Strategy Officer, Enova.................     4
        Prepared Statement...........................................     6
    Mr. Steve Trager, Executive Chair, Republic Bank and Trust
      Company........................................................    13
        Prepared Statement...........................................    15
    Mr. Mike de Vere, Chief Executive Officer, Zest AI...............    20
        Prepared Statement...........................................    22
    Ms. Karen Harbin, President and Chief Executive Officer,
      Commonwealth Credit Union......................................    32
        Prepared Statement...........................................    34
    Ms. Amy Roberti, Global Head of Public Policy, Stripe............    39
        Prepared Statement...........................................    41

                         FINANCIAL INSTITUTION-FINTECH
                      PARTNERSHIPS: LEVERAGING THIRD-PARTY
                        RELATIONSHIPS TO INCREASE ACCESS
                             TO FINANCIAL SERVICES

                                  ----------

                             Friday, July 12, 2024

                 U.S. House of Representatives,
                 Subcommittee on Financial Institutions
                                   and Monetary Policy,
                               Committee on Financial Services,
                                                        Washington, DC.

        The subcommittee met, pursuant to notice, at 10 a.m., at
    401 Cross Street, Lexington, Kentucky, Hon. Andy Barr, Chairman
    of the Subcommittee, presiding.
        Present: Representatives Barr, Rose, and Fitzgerald.
        Also present: Representatives Sessions and Flood.
        Chairman Barr. The committee will come to order. Without
    objection, the chair is authorized to declare a recess of the
    committee at any time.
        This hearing is titled, ``Financial Institution-Fintech
    Partnerships: Leveraging Third-Party Relationships to Increase
    Access to Financial Services.''
        Without objection, all members will have 5 legislative days
    within which to submit extraneous materials to the chair for
    inclusion in the record.
        I now recognize myself to give an opening statement.

         OPENING STATEMENT OF HON. ANDY BARR, CHAIRMAN OF THE
     SUBCOMMITTEE ON FINANCIAL INSTITUTIONS AND MONETARY POLICY, A
                   U.S. REPRESENTATIVE FROM KENTUCKY

        Welcome. Welcome to all to Kentucky's Sixth Congressional
    District. I want to thank all of our witnesses here today, and
    my colleagues who were able to make today's hearing in central
    Kentucky, the great Commonwealth of Kentucky.
        I want to thank in particular my colleagues Congressman
    Sessions from Texas, Congressman Rose from Tennessee,
    Congressman Fitzgerald from Wisconsin, and Congressman Flood
    from Nebraska, all great patriots and friends and colleagues.
        It is great to see all of you as well, numerous friends and
    neighbors, especially the financial services industry right
    here in the Commonwealth of Kentucky. I see many friends from
    the banking and the credit union industry here in Kentucky.
    Thank you. Welcome to all of you for participating today.
        I want to especially thank at the outset Deirdre Lyons and
    Mark Lyons. Mark had to be in Brazil today for the company but
    to Alltech and all of the leadership at Alltech. Brad, thank
    you for helping to organize as well, Brad Harris, the general
    counsel.
        Deirdre Lyons, I just want to say at the outset, this is
    her beautiful facility, part of the Alltech family of
    businesses, the Lexington Distilling and Brewing Company. For
    those of you who do not know, it is altogether appropriate that
    this is the venue, Alltech is the venue for a hearing where we
    are exploring cutting edge innovation, because there is no
    company in Kentucky, my congressional district, I would argue
    in the country and in the world that is as innovative as
    Alltech has been over these last 40 years.
        Dr. Pearse Lyons and his wife Deirdre immigrated to the
    United States from Ireland with an entrepreneurial spirit, and
    they are literally the epitome of the American dream, having
    built this animal nutrition, brewery, distilling business
    empire. We are just so grateful, Deirdre, for your hospitality
    and for welcoming us here in this wonderful facility. We are
    very proud of our bourbon heritage here in central Kentucky,
    and so thank you for all you do for our community.
        In this subcommittee, I have been honored to have great
    colleagues on both sides of the aisle, including Ranking Member
    Bill Foster from Illinois, who unfortunately cannot be with us
    today, but sends his regards. This journey that we are on in
    financial inclusion has been a bipartisan enterprise and we
    appreciate Dr. Foster for his collaboration.
        On both sides of the aisle, there has been keen interest in
    fostering the prosperity of community banks and credit unions
    and the businesses that they serve. It is fair to say that
    there is joint concern that our banking system has been losing
    some of its dynamism and breadth. We do not want to end up with
    a barbell banking system, with a lot of too-big-to-fail banks,
    big Wall Street banks, money center banks on one end, and a
    scattering of small institutions on the other, and not much in
    between.
        The strength of our financial system in the United States
    is its diversity, and that is what we are here to talk about
    today. This hearing is about bank and community financial
    institutions, credit unions' partnerships with financial
    organizations that provide so much innovation and community
    banks and credit unions partnering with these organizations
    that engage in business activities with them often are referred
    to as third-party vendors.
        Such partnerships which increasingly involve vendors that
    employ innovative technologies can allow more efficient
    provision of financial services to consumers and businesses of
    all sizes. With adherence to prudent risk management of these
    relationships, financial institutions can better serve
    communities, including facilitating expanded opportunities and
    inclusion in the form of access to financial services to those
    who may be less likely to access financial services through
    traditional bank products.
        Efficiencies include servicing clients in a timelier
    manner, improved compliance with legal and regulatory
    requirements, better management of operational risk, lower cost
    transactions, reduced friction in payments, and enhanced data
    protection.
        As innovation in the provision of financial services
    accelerates, it remains important that a proper balance be
    struck between fostering innovation and attention to due
    diligence to ensure safety, soundness, stability, and consumer
    protection. At the same time, Federal and State regulators of
    banks and credit unions must not reflexively and unnecessarily
    stifle innovation, especially if motivated by politicized
    interests. Unfortunately, that has been what is occurring far
    too often recently.
        For example, in June 2023, the Office of the Comptroller of
    the Currency, the Federal Deposit Insurance Corporation, and
    the Federal Reserve issued final joint guidance establishing
    principles for all banks under Federal supervision to consider
    when entering into third-party relationships. One Federal
    Reserve Governor argued that the guidance is yet another part
    of a concerning pattern by regulators of deviating from a risk-
    based and tailored approach to supervision and regulation of
    banks.
        Furthermore, an Federal Deposit Insurance Corporation
    (FDIC) director argued that elements of the guidance will
    create more ambiguity for banks rather than more clarity, which
    guidance should be intended to provide. Opaque guidance and
    rules create more ambiguity for banks. Ambiguity equates to
    higher prices and less options for consumers. These outcomes
    are not beneficial for our financial system or for American
    households and businesses.
        Following the release of the Joint Agency Guidance in 2023,
    community banks expressed concerns that it does not provide
    bright line assurances that certain activity would or would not
    be permitted and was not prescriptive enough to explicitly
    prohibit certain activity. The guidance was too vague to
    provide an executable roadmap discerning what activities
    regulators would find acceptable or not.
        Such opacity leads to unnecessary uncertainty, which can
    impede adoption of some services and innovation, and could lead
    to regulation by enforcement. Unprincipled regulatory agencies
    can and unfortunately do in some instances use regulation by
    enforcement to execute agendas outside of their mandates,
    therefore evading the intent of Congress. Unelected bureaucrats
    need to provide clear rules and be responsive to the actions
    they take that impact the banking system.
        I look forward to hearing about the experiences of today's
    witnesses, along with your views and suggestions for improving
    the financial landscape throughout the Commonwealth of Kentucky
    and the United States.
        These field hearings, I will say in conclusion, these field
    hearings are not common, but I think are extremely useful,
    where Congress actually comes to you, the American people, in
    the heartland of our country to get a real world view of what
    is possible in the area of financial innovation. I think that
    is very refreshing, instead of just relying on experts inside
    the Beltway.
        With that we welcome today the testimony of: Kirk Chartier.
    Mr. Chartier is the chief strategy officer of Enova; Mike de
    Vere, Mr. de Vere is the chief executive officer of Zest AI;
    Karen Harbin, Ms. Harbin is president and chief executive
    officer of Commonwealth Credit Union right here in Kentucky;
    Amy Roberti, Ms. Roberti is global head of public policy for
    Stripe and Steve Trager and; Steve Trager is the executive
    chair of Republic Bank and Trust Company also located here in
    the Commonwealth.
        We thank each of you for taking time to be here. Each of
    you will be recognized for 5 minutes to give an oral
    presentation of your testimony. Without objection, each of your
    written statements will be made part of the record.
        We will go in order down the line. We will start with Mr.
    Chartier. You are now recognized for 5 minutes to give your
    oral remarks.

       STATEMENT OF KIRK CHARTIER, CHIEF STRATEGY OFFICER, ENOVA

        Mr. Chartier. Thank you very much. Good afternoon, Chairman
    Barr, and members of the Subcommittee on Financial Institutions
    and Monetary Policy. My name is Kirk Chartier. I serve as the
    chief strategy officer at Enova International, headquartered in
    Chicago, Illinois. I have worked in financial services and
    technology for over 30 years, including Charles Schwab, Dell
    Technologies, and Safeco Insurance.
        Enova is a leading financial services company utilizing
    machine learning and world-class analytics to offer loan and
    line of credit products for consumers and small businesses in
    the U.S., as well as offering services and technologies to
    banks to help them serve those same customers. I am grateful
    for the opportunity to discuss the role Enova plays, and its
    more than 1,650 employees in increasing financial inclusion in
    America.
        Since our founding 20 years ago, Enova has been committed
    to helping hardworking people gain access to fast, trustworthy
    credit to meet their financial responsibilities. To date, we
    have served over 10 million customers, originated or serviced
    $55 billion in loans, and have been recognized as a best place
    to work in IT for over a dozen years.
        Enova is a $4.6 billion balance sheet company operating
    some of the best known brands in consumer and small business
    lending including NetCredit and OnDeck. My company is both a
    direct lender and a service provider to community banks who
    seek to expand the population they can offer loans to.
        Smaller banks leverage the investments companies like Enova
    makes in their marketing, data and analytics, servicing,
    compliance, and capital markets capabilities so that they can
    compete with those large money center banks.
        The reality today for Americans is stark. Many are
    struggling with financial instability. A recent Federal Reserve
    report highlighted that nearly 40 percent of Americans could
    not meet an emergency expense of $400 from their savings. For
    people with credit scores below 680, it is even worse. Fifty-
    two percent of them report being turned down for loans in 2023.
    They do not have the savings and they cannot get the loans.
        These challenges are not unique to consumers. Another
    Federal Reserve study showed that 52 percent of medium to high-
    risk small businesses were also turned down by banks for loans
    last year.
        Enova serves this critical need by offering products
    designed to provide pathways to better financial health for
    consumers and small businesses that often do not qualify for
    traditional bank products. By serving such underserved groups,
    we believe we are contributing significantly to financial
    inclusion, providing many with the means to navigate unexpected
    financial challenges or to grow their businesses.
        Additionally, using an online model means most people can
    get convenient access to credit through their electronic
    devices when and where they choose. Enova can do this because
    it has developed proprietary technologies that harness the
    power of data analytics and supervised machine learning. These
    technologies not only ensure efficient and fair credit
    assessment, but they also safeguard consumer data through
    rigorous security measures.
        However, the landscape of digital finance is evolving
    rapidly and our ability to continue innovating is challenged by
    a complex patchwork of State regulations. These laws have not
    kept pace with technological advancements in data and
    analytics, the essential tools that enable us to customize our
    products.
        Activists are driving changes in State laws regarding
    lending practices and banking that can pose real challenges.
    There are novel theories out there of true lender tests
    specifically targeted to banks working with third-party service
    providers, and some are advocating for states to opt out of
    national banking laws like the Depository Institutions
    Deregulation Monetary Control Act of 1980, called DIDMCA by
    most. That opt out would undermine our dual banking system.
    Ultimately, this all leads to less competition and fewer
    options for those seeking credit.
        We believe that Congress can play a significant role in
    bringing more clarity and certainty to this market, which in
    turn would result in more innovations and a greater number of
    banks being able to serve more customers. While prudential
    regulators have a valid, well-made rule in place, there is a
    need for a uniform true lender rule to go with it, one like the
    Office of the Comptroller of the Currency's (OCC's) 2020 rule
    that was straightforward and clear for the bank, regulator, and
    borrower. We would also suggest clarifying DIDMCA opt out
    authority and strengthening Congress's oversight authority on
    Federal regulators.
        Recent Supreme Court rulings have stated that the executive
    branch administrative agencies must have clear directives from
    Congress to function properly. These actions would increase the
    number of banks lending to people and businesses that need it
    most by reducing uncertainty about the risks and liabilities of
    those programs.
        Thank you for the opportunity to share our perspective
    today. I look forward to addressing any questions you have.

        [The prepared statement of Mr. Chartier follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Chairman Barr. Thank you.
        Now, Steve Trager, you are recognized for 5 minutes.

     STATEMENT OF STEVE TRAGER, EXECUTIVE CHAIR, REPUBLIC BANK AND
                             TRUST COMPANY

        Mr. Trager. Good morning. As mentioned, I am Steve Trager,
    executive chair of Republic Bank. Good morning and welcome to
    Congressman Barr and our distinguished congressional panel, as
    well as all the other folks of interest out there.
        I wanted to spend a little time and tell you about Republic
    Bank and what we are about and then some of the products that
    we offer and some of the divisions that we have in order to
    better serve our communities in a broad community.
        Republic Bank, as mentioned, is a Kentucky-based financial
    institution. We are one of the 5 percent largest banks in the
    country, at about $6-and-a-half billion in assets, which are
    spread and served among our 47 locations in five states,
    Kentucky, Indiana, Ohio, Florida, and Tennessee. This branch
    network is a very traditional branch network and we offer
    traditional bank products for the communities we serve,
    mortgage loans, commercial loans, lines of credit, various
    deposit products again throughout the communities we serve. We
    serve about 120,000 customers throughout those communities.
        In addition to that, kind of our icing on the cake in our
    desire to be more than just a traditional community bank are
    nontraditional bank products that we offer through a division
    that we label as Republic Processing Group. Republic Processing
    Group, I will talk a bit about that in a minute, but basically
    that is composed of tax refund solutions, Republic Processing
    Systems, and also Republic Credit Solutions.
        Before I get into that, let me proudly talk a little bit
    more about what we do at Republic Bank. I am proud to say that
    we have been recognized as one of the top performing banks in
    the country and like most banks in our industry, we are
    extraordinarily transparent, we are most accountable to
    regulators, our customers, shareholders, and the communities we
    serve. I know of no other industry that is more accountable and
    transparent in that regard.
        I am also proud to say that we have received high marks for
    customer service, philanthropy, and community engagement,
    including most recently our recognition in 2024 as a best
    places to work in Kentucky, best partners in philanthropy
    honoree, and also our recent outstanding Community Reinvestment
    Act rating.
        In addition, as far as philanthropy is concerned, we are
    proud to have our name and be the primary funder of the
    Republic Bank Foundation Young Men's Christian Association
    (YMCA), which is a new YMCA in an underserved part of our
    community in Louisville. Also we were the lead bank for the
    Louisville Urban League Sports and Learning Center. Then we
    have a $6 million commitment in the form of our community loan
    fund, which we make funds available to businesses in
    underserved parts of the community. In addition, we have an
    investment of more than 73 million in low income housing
    projects in the communities we serve over the last 2 years.
        Now, I mentioned Republic Processing Group, which is
    another component of Republic Bank that is a bit nontraditional
    and enables us to serve several million consumers throughout
    the country with the aid of our partnerships such as Enova and
    other financial technology (fintech) partnerships.
    Predominantly, again, I mentioned TRS, which is tax. We are in
    the tax business. We process over two and a half million tax
    refunds electronically for consumers around the country and
    Republic Payment Solutions, we have about a million prepaid
    cards outstanding, where we serve folks throughout our--
    throughout the country.
        I guess my discussion focus today is Republic Credit
    Solutions that enables us to bring small dollar credit products
    to an underserved part of our country through partnerships with
    two fintechs, one of which is Enova here today.
        These partnerships we take very seriously. You really want
    banks to be engaged in these partnerships because I would like
    to think we bring an accountability, a transparency, a risk
    component because we are at risk for these partnerships. The
    fact of the matter is, through our legacy systems, we would be
    unable to serve this large community without the help of folks
    like Enova.
        Again, you want banks in this--engaged in this and you want
    to make sure that there is not such an excessive regulatory
    deterrence to engagement to make sure that we are held
    accountable but appropriately accountable for protecting
    consumers, holding our partners accountable, et cetera, et
    cetera. I think we also serve as a form of oversight and
    accountability ourselves because that is a big component of the
    life cycle that we have with these folks.
        I can tell you there are some very responsible fintechs out
    there. I am proud to say that the two we work with, Enova being
    one, fall into that category but not every fintech is like that
    and of every ten that approach us, we turn down nine of them.
    So we have that level of accountability. If I had to categorize
    my ask, it would be let us not totally discourage banks from
    doing these things and partnering, because again we bring a
    good accountability to it. Thank you.

        [The prepared statement of Mr. Trager follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Chairman Barr. Great. Thank you very much, and I am being
    light with the gavel. We have some great testimony, so I am
    letting folks go a little bit over.
        Mike de Vere with Zest AI. I met Mike, a California fintech
    who educated me right up front he works with Kentucky credit
    unions. So, Mike, you are recognized for 5 minutes.

      STATEMENT OF MIKE DE VERE, CHIEF EXECUTIVE OFFICER, ZEST AI

        Mr. de Vere. Thank you, Congressman Barr. Thank you for
    inviting Zest AI to take part in this field hearing, to share
    how we have seen AI, artificial intelligence, and specifically
    our technology, make a positive impact on credit union clients,
    credit union clients like Commonwealth.
        A little fun fact for everybody here. We actually have one
    of the leading innovators in the adoption of AI in underwriting
    sitting right next to me, and from Kentucky. So--right? So when
    we now look at, from a Zest AI perspective, some of our largest
    customers like Citibank, all the way to Molokai Credit Union,
    we are processing over a trillion dollars in loans. That is one
    in five credit union members across the U.S. That is one in
    five credit union members here in the great State of Kentucky.
    So I cannot thank you enough for this opportunity to present
    with you, Karen, and thank you for your leadership in this
    space.
        What I am here to share with members today is how Zest AI
    has done the work, hired the right people, and built the
    technology that is capable of building a robust, inclusive, and
    compliant banking infrastructure for lenders like Commonwealth
    Credit Union. By building this better, fairer system, we remove
    a barrier that has existed for millions of creditworthy people
    who live in the U.S. We are talking about over 40 million
    Americans who are either unscorable or not scorable and do not
    have access to opportunity, which is credit.
        At Zest AI, we are thinking constantly about the inequity
    and status quo of credit score system, the status quo system.
    That is a code, right? The industry score that we all wonder
    about the explainability associated with that, that has been in
    place for over 40 years, but lacks transparency and is held to
    a different standard than other fintechs like ourselves.
        You know, the level of transparency that we have to live up
    to goes to everything from model explainability to generating
    adverse action codes and things like that. This is a goliath
    and labyrinth of regulations we have to run through. Yet there
    are other monopolies out there that do not have to follow the
    same rigor.
        For model transparency, our models are accompanied with
    reports, analysis to track and explain outcomes for consumers.
    These insights into the data variables contributions are key to
    transparency, explainability, and compliance. Lenders that use
    our models can actually see what data inputs went to the score.
    This is not the Terminator, it is not self-learning. This is
    supervised machine learning that we are using, and everything
    is explainable.
        AI models are all required to provide information
    sufficient to disclose the consumer details about the outcomes
    of the decisions that were made with the AI, also known as the
    adverse action notices, required under Equal Credit Opportunity
    Act (ECOA) and Fair Credit Reporting Act (FCRA). These notices
    inform the consumers, which is important, and the members of
    the reasons they could not get the credit they sought. However,
    the quality of models can vary and a fully transparent AI model
    like the one we custom built for Commonwealth Credit Union is
    necessary to generate accurate adverse action notices. AI can
    be a powerful force for good when done right. It is not the
    boogieman.
        With more data insights and better math in the form of
    artificial intelligence and machine learning, Zest AI clients
    can safely expand credit access through more accurate risk
    predictions, state-of-the-art model governance. Many of our
    customers, when we look across the results that they are
    seeing, we will see increases in approvals of 25 percent,
    decreases in charge-offs. Who does not like that? It expands
    access to their full customer base.
        Zest AI focuses on being the catalyst for economic equity
    by leveraging AI's potential for good. Everyone has worth.
    Lending decisions should reflect that. I will say that again.
    Everyone has worth. Lending decisions should reflect that. This
    idea of credit worthy? These are Americans. Every American
    should have equal access, fair access and a fair shot at
    credit.
        I look forward to working with you all and sharing any
    insights I can on the work we do at Zest AI to improve
    equitable access to mainstream credit.

        [The prepared statement of Mr. de Vere follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Chairman Barr. Thank you, Mike, and speaking of that
    innovative Kentucky credit union, Karen Harbin is now
    recognized.

       STATEMENT OF KAREN HARBIN, PRESIDENT AND CHIEF EXECUTIVE
                   OFFICER, COMMONWEALTH CREDIT UNION

        Ms. Harbin. Thank you. Good morning. I am Karen Harbin,
    president and CEO of Commonwealth Credit Union, headquartered
    in Frankfort, Kentucky. We are a state-chartered credit union
    with over two billion in assets and 18 branches in the central
    Kentucky and Louisville metro areas. Thank you for the
    opportunity to be here today to talk about how fintech
    partnerships enhance our ability to serve our credit union
    members.
        In 2019, Commonwealth set out to make better lending
    decisions for our members. The lending team wanted to
    confidently lend down the credit spectrum through more
    accurate, unbiased decisioning that would not increase risk.
    They also knew we needed to innovate the lending process to
    meet our members' increased demand for a fast, frictionless
    lending experience.
        We set out to find a fintech partner in the marketplace
    that could help us meet these challenges, and we found one in
    Zest AI and their underwriting tool. Zest AI was ready to fill
    in the gaps with increased automation and accuracy. This
    allowed our underwriting teams to focus on members who need
    more personal support with their application. Their technology
    has allowed us to say yes to more members while not negatively
    impacting charge-off and delinquency ratios.
        With nearly three-fourths of all consumer loans decisioned
    automatically under this partnership, Commonwealth's ability to
    compete with other lenders has skyrocketed. Since 2021, Zest AI
    has helped Commonwealth approve more than 370 million in
    consumer loans. The performance of these loans is also
    stronger.
        With this technology, we can approve member loans outside
    of regular business hours, enhancing convenience and
    accessibility. For example, in 2023, we recorded over 3,000
    more loans than in 2019. Zest AI has helped us make previously
    invisible credit files scorable, again enabling us to say yes
    to a broader and more diverse range of applicants.
        Using automated underwriting as part of our partnership
    with Zest AI, Commonwealth has increased our approval rates for
    minority borrowers, doubling it for auto loans, increasing by
    40 percent for credit cards, and raising it by 9 percent for
    personal loans. Loan approvals for female borrowers have also
    seen similar increases. This partnership has been very
    successful for us and we believe this is a great example of how
    working with the right fintech partner can benefit financial
    institutions like Commonwealth.
        We have heard from numerous members who thank us for
    approving their loans. Many are now turning to us when other
    lenders are turning them down. Zest AI has made it easier for
    us to now serve them.
        Unfortunately, there is still uncertainty in the regulatory
    environment with fintech and AI usage. Regulators frequently
    recognize the advantages of technological collaborations, yet
    they have also voiced apprehension that certain technologies
    like AI may be functioning in ways that neither they nor
    consumers fully understand.
        We are concerned that regulators taking a stringent stance
    on AI usage in the financial sector could disproportionately
    harm credit unions and smaller institutions while benefiting
    the largest incumbents. For example, statements from the
    Consumer Financial Protection Bureau (CFPB) suggesting that AI
    algorithms function as opaque black boxes introduce uncertainty
    about the level of regulatory scrutiny, especially in the
    absence of evidence of harm to consumers.
        When regulatory entities approach technology in this
    manner, it reinforces the concern that smaller entities could
    face obstacles to success as only the largest institutions may
    possess the resources necessary to meet such rigorous
    standards. We believe regulatory assessments of new
    technologies must embrace balanced and flexible approaches to
    risk management that can accommodate innovation while
    protecting consumers. While there may be need for clear rules
    of the road, those rules should not be so stringent as to
    stifle innovation or disadvantage smaller institution.
        In conclusion, the impact of credit unions including
    Commonwealth Credit Union lies in our genuine commitment to
    serving communities. Every step we take is in line with our
    primary mission to better the lives of those we serve. Our
    partnership with fintechs like Zest AI allow us to better serve
    our members. It is important that regulators not create
    expansive requirements or new hurdles that threaten the ability
    of credit unions to take advantage of successful partnerships
    like we have with Zest AI.
        Thank you for the opportunity to be here today, and I
    welcome any question.

        [The prepared statement of Ms. Harbin follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Chairman Barr. Thank you, Karen.
        Last but not least, we recognize Amy Roberti, head of
    global policy with Stripe. You are recognized for 5 minutes.

     STATEMENT OF AMY ROBERTI, GLOBAL HEAD OF PUBLIC POLICY, STRIPE

        Ms. Roberti. Thank you, Mr. Chairman, and distinguished
    members of the subcommittee. Thanks for welcoming Stripe to
    Kentucky. Thank you as well to our wonderful host, the
    Lexington Brewing and Distilling Company, whose business Stripe
    has the privilege of serving.
        Stripe is a technology company that builds economic
    infrastructure for the internet. Businesses of every size from
    the smallest of startups to big public companies use our
    technology and tools to accept payments online and grow their
    businesses.
        Stripe was founded in the U.S. in 2011 by John and Patrick
    Collison, two brothers from Limerick, Ireland. Before Stripe,
    they built another startup and found that the biggest challenge
    was accepting payments. That is when the idea of Stripe was
    born.
        Patrick and John created just seven lines of code that they
    could give to businesses to start accepting payments online in
    a matter of minutes. Since then, Stripe has grown along with
    some of the world's biggest and most innovative online
    companies but we also power the digital transformation of
    companies that are not traditionally online, like Ford Motor
    Company and Target. They use our software for a range of
    corporate functions, from analyzing revenue, finding sales
    opportunities, and preventing fraud.
        These tools are not just available to industry giants. We
    serve millions of small businesses across the U.S.; nearly half
    a million of the businesses we serve are actually rural
    businesses. I am proud to say that more than 34,000 of them are
    here, based in Kentucky.
        Today, we are seeing a fundamental shift in how businesses
    access financial services, with software platforms integrating
    payments, capital, and other services directly into their
    business operations. A great local example of this is Pay HOA,
    a Lexington-based startup. They built a software platform that
    helps homeowners associations manage their communities more
    efficiently, from providing payment services to communications.
    They serve over 20,000 associations and nearly 650,000
    homeowners across the United States, showcasing how local
    businesses can leverage technology to solve industry-specific
    challenges.
        To make all of this work, Stripe partners with a number of
    financial institutions. These partnerships enable us to jointly
    extend the reach of financial services to underserved
    businesses. Last year, Stripe helped businesses around the
    globe process more than one trillion dollars in payments
    volume. That represents 1 percent of global Gross domestic
    product (GDP).
        The economic growth is powered by acquiring bank and
    network partnerships, but these are not new. They have been
    around for decades. The difference now is that they are scaling
    and more finely tuned to meet the needs of each individual
    business.
        This growth does not just happen in big tech hubs. As the
    online economy grows, we see that it is compounding locally,
    too. Since 2010, states including Kentucky, Tennessee, Indiana,
    Texas, and Nebraska, just to name a few, have seen per capita
    payment volume grow more than four times during this period.
    Payment volume increased approximately seven times in
    Knoxville, five times in Omaha, four times in Louisville,
    Houston, and Indianapolis, and three times in Nashville and
    Dallas.
        Growth is not limited to urban areas. Over that same
    period, rural areas across the U.S. increased processing volume
    on Stripe fivefold and rural businesses here in Kentucky saw an
    impressive eight times increase in volume.
        How do we keep growing the GDP of the internet? We have a
    few policy recommendations that we added to our testimony. In
    short, we think keep promoting bank and tech partnerships,
    provide a Federal framework for payments companies, digitalize
    government services that hurt small businesses, and keep
    fostering innovation.
        In conclusion, Stripe's humble mission is to grow the GDP
    of the internet. We are optimistic that technology-driven
    improvements can help achieve this goal. Through thoughtful
    policies that scale access and oversight on a positive basis,
    we can create a more inclusive and efficient financial system
    for all Americans and drive economic growth.
        Thank you for the opportunity to participate in this
    hearing and thanks for the warm Kentucky welcome. I look
    forward to your questions.

        [The prepared statement of Ms. Roberti follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Chairman Barr. Thank you very much. I appreciate everyone
    for their testimony. I do want to recognize Jim Cash, the
    president and CEO of the Kentucky Credit Union League, who is
    here and also Ballard Cassady, president and CEO of the
    Kentucky Bankers Association. I appreciate both of you all for
    being here today.
        We will now turn to member questions and the chair now
    recognizes himself for 5 minutes.
        Mr. Trager, tell us a little bit more about how banks can
    leverage these third-party relationships to improve access to
    credit, expand financial services offered to consumers and
    small businesses, and talk about how important it is for
    especially community banks to leverage these third-party
    relationships in a very competitive environment relative to
    regional and large Global Systemically Important Banks (G-
    SIBs)?
        Mr. Trager. As a community bank, you know, it is our goal
    to serve more people in more places that the big banks have
    great difficulty in serving. As I mentioned, we have 47
    branches. Those branches serve a very real purpose in our
    community for a very unique clientele but they, through those
    branches, it would be impossible to serve the few million
    consumers that we serve.
        Our infrastructure and the efficiency is just not capable
    of a person--or it is very difficult to have a person walk into
    a bank, walk into a branch, and get a $1,000 loan within 24
    hours. We just have legacy systems, infrastructure. It is very
    difficult to do that. Like I said, we serve 100,000 customers
    through those--120,000 customers through those 47 locations.
        With the help of Enova and a fintech, we can serve a few
    million customers with a need and be able to provide access to
    that need that customer, for one reason or another, is hesitant
    to go to a traditional branch bank.
        Chairman Barr. So it is fair to say because the enormous
    cost of investing in technology is harder for smaller community
    financial institutions, these fintech partnerships are critical
    to level the playing field between the community smaller
    institutions and the big banks?
        Mr. Trager. Without question and we are not a small bank.
    It applies to us because we know the cost involved but to our
    brethren, smaller banks, there are, I do not know, 2,400 banks
    in the country, 1,800 of them are under a billion dollars in
    assets. We are six and a half billion. For those folks in
    particular that may not have the capital and resources, it
    would be vital for them to be able to partner with folks, with
    fintechs, the right fintechs, to be able to offer more products
    and services to more people in more places.
        Chairman Barr. Thank you. Ms. Harbin, could you give us an
    example, a really good example of the financial inclusion
    benefits of partnering with a Zest AI and serving a customer
    who otherwise would not have access to credit?
        Ms. Harbin. Thank you. With Zest AI, we have been able to
    make more accurate, unbiased decisions and go deeper with our
    members and provide financial services to them where they
    otherwise cannot get services. Zest AI looks at about 190 to
    200 data points and provides us a decision in 2.4 seconds. It
    takes us, if a manual underwriting, it would take us five to 7
    minutes and we are looking at 15 to 20 data points.
        Zest AI has many stories to tell you. One in particular, a
    couple came in to one of our branches and he had a temporary
    hardship, where he had reduced hours and he did not know how he
    was going to pay his bills. We were able to approve him on the
    spot and provide $6,000 that he could use until he got back on
    his feet. That would not have been possible without an
    immediate decision from Zest AI.
        All consumers are looking for immediate access. You go to
    the drive-thru somewhere, you want to be serviced immediately.
    Us being able to have a decision in 2.4 seconds is fantastic
    and our members are elated with that service.
        Chairman Barr. Mr. de Vere, can you speak to some of the
    recent pronouncements or expressions of concern from the
    Consumer Protection Bureau that could threaten the innovation
    of artificial intelligence in promoting financial inclusion?
        Mr. de Vere. Yes, I think from our perspective, we lean in
    with the regulators. So if we are talking about the CFPB, we
    are a supervised entity and the regulations that are on the
    books are sufficient to protect members from our perspective.
    We also work with National Credit Union Administration (NCUA)
    and have a tremendous partnership with them. So, from our
    perspective, I think regulations are necessary to protect
    consumers.
        I think, Congressman Barr, you brought up a very good point
    at the beginning. It is really about competition and if we
    overregulate, we will end up stifling competition, and our
    financial institutions will be for the worse.
        Chairman Barr. My time has expired, and we might have time
    for some more questions. We will get to Ms. Roberti and Mr.
    Chartier in a minute.
        With that, we now recognize Mr. Rose for 5 minutes.
        Mr. Rose. Thank you, Chairman Barr, for holding the
    hearing, and for the opportunity to be a part of this. I had
    the honor, as you know, just a couple months ago to host you
    and Mr. Flood in my district, Tennessee's Sixth District, for a
    similar type of hearing. I share your view that it is important
    for us to take these hearings back out to our districts, and
    not only to get testimony from folks who we might not see in
    Washington, but also so that folks here in your district and in
    mine can see what our work looks like.
        While it may seem at times that these things are a little
    cumbersome and staged or whatever, the insights that we gain
    from the witnesses are invaluable for doing our work, and very
    often are both the inspiration and the encouragement for the
    work that we do to change the law and make it possible for the
    American people to engage in the freedom of transactions that
    they wish to. So I will dive straight into my questions.
        Ms. Roberti, in my district, the Sixth District, again, of
    Tennessee, there are over 400 active Stripe merchants.
    Hopefully, that is an accurate number. Stripe has facilitated
    over five million in payments just in this past June. So those
    figures indicate that the work that Stripe is doing is
    appreciated by both merchants and consumers alike.
        One specific service that Stripe offers is Stripe Connect.
    I know that companies like Ford have adopted this technology
    with great success. Could you explain how Stripe Connect would
    work with dealerships like Ford of Cookeville, my hometown, to
    connect consumers, merchants, and dealers?
        Ms. Roberti. Thank you, Congressman. Yes, we are proud to
    partner with Ford Motor Company. I think it is a great example
    of a product that we offer, Stripe Connect, where we actually
    onboard the dealerships, and so they have access to the full
    suite of payments, products, antifraud, everything they need to
    run their business. Then, those accounts are connected accounts
    to Ford Motor Company generally, so both parties get the
    benefit of the business insights that we can see from the
    transactions that are happening in their dealerships. It is
    sort of taking maybe a small dealership and giving them the
    tools that a Fortune 50 company would have and we have seen
    that leads to increase in sales, increase in customer
    understanding, happier users, more revenue.
        I think it is a great example of a product that just
    enables innovations for smaller dealerships that maybe would
    not have access to that.
        Mr. Rose. Thank you and at the back end of Stripe Connect,
    what role do bank partnerships play in launching an innovative
    product like Stripe Connect?
        Ms. Roberti. I think this is where, when we talk about
    bank-fintech partnerships, sometimes it sounds very exotic, and
    we are talking about things that are not just the day to day.
    So for us, a lot of our bank-fintech partnerships are the more
    mundane, just banking identification number (BIN) sponsors. A
    bank is partnering with us to facilitate those payments that
    are happening every day. So that is how we would partner with a
    bank for Stripe Connect and to help Ford Motor Company.
        Mr. Rose. Thank you. Unfortunately, in today's regulatory
    climate, we have regulators who seem to be afraid many times of
    novel or innovative technology being implemented in the
    financial sector. Ms. Harbin, as regulators consider acting in
    the fintech space, what would you say is important for them to
    consider from a community financial institution perspective?
        Ms. Harbin.We support a balanced regulatory approach but
    the regulations cannot be so rigid that it forces smaller
    institutions such as Commonwealth and other community banks out
    of business with overregulation. So I guess that is----
        Mr. Rose. I share that concern. The quandary I think is to
    balance the need for innovation against the safety and security
    of our financial industry and the consumers that rely on it.
        In the last moments here of this round, Ms. Roberti, I know
    that Stripe is proud to offer a hundred different forms of
    payment across their online and in-person payment processors.
    One aspect of payment processing development that concerns me
    is the erosion of the acceptance of cash as a payment method.
    How does Stripe facilitate the acceptance of cash during in-
    person transactions?
        Ms. Roberti. Thank you, Congressman. I think this is
    important because we are in the business of giving our users
    what they want and it is clear that users, merchants want to
    offer cash as a payment method in many cases. So we have a
    product that is a point-of-sale device called Terminal that you
    have probably seen when you are paying for something in a store
    and we absolutely can operate that with a cash drawer as a cash
    option, and we think that is really important to offer
    consumers that choice.
        Mr. Rose. Thank you. I see my time has expired. Thanks for
    your indulgence, Chairman, and I yield back.
        Chairman Barr. Thank you. The gentleman from Wisconsin, Mr.
    Fitzgerald, is now recognized.
        Mr. Fitzgerald. Well, thank you, Chairman, very much and
    thanks for hosting us. What a wonderful opportunity to have a
    larger discussion on many of the topics that we have been
    focused on in DC for some time. As most Members of Congress, of
    course we like to talk about our own districts. So let me talk
    about the Fifth District in Wisconsin quickly, where we do have
    a bank, the Horicon Bank, that has had employees that have been
    finalists for the American Bankers Innovators of the Year in
    2024. The reason I bring that up is because what Horicon Bank
    has been doing is utilizing technology to benefit customer
    experience with features like opening an account online, as we
    are all familiar with, interactive teller machines, video and
    chat services, as well as helping back office functions, fraud
    prevention and compliance.
        Horicon is focused on software as a service solution,
    rather than banking as a service one. So my questions are kind
    of related to that.
        Mr. Trager and Ms. Harbin, have you seen examiners
    differentiate between institutions that use software as a
    service and banking as a service? Then, what is the biggest
    obstacle, do you think, in implementing banking as a service
    solution? So there is kind of the front end for technology and
    the back end. I am wondering if you had any comments on that.
        Mr. Trager, you can go first, I guess.
        Mr. Trager. Thank you for the question. It is a good
    question. I am not sure of the exact label of it. You know, the
    fact of the matter is that the regulatory environment is very
    necessary. I have a high degree of respect and regard for our
    regulators.
        Any time you do anything new or innovative, it is subject
    to a lot of scrutiny. That waves a flag of risk. Now, we have
    so much at stake that we understand that risk, and we are very
    forthcoming with our regulators, anything new we do, we throw a
    lot of resources at it. I mean, we have 35 folks in our
    compliance department.
        So we tend to be able to navigate that with some challenge.
    I think for others, it certainly is even more challenging, and
    for us it is always of concern whenever we try to do anything
    new and innovative.
        I would just say we ask for some appropriate regulation.
    You cannot regulate around everything. Sometimes, it is just up
    to the execution of the regulators. They have the tools in
    place, without question, to address the challenges of
    innovation. I think there is not a congressional response to
    every incident that happens.
        So, we make it work. I think it is very difficult for a lot
    of banks to make it work. It is certainly difficult for us to
    make it work.
        Mr. Fitzgerald. Ms. Harbin, you have a comment on that?
        Ms. Harbin. Thank you. So we have had--we have been with
    Zest AI since 2021 and had numerous exams and audits, reviews,
    and we are met with applause. They applaud our efforts to go
    deeper and serve more members. We are serving more people in
    protected classes.
        Zest AI provides us with numerous reports that we share
    with our board on a quarterly basis. We do an Return on
    Investment (ROI) on the service, the cost/benefit analysis. We
    went through great due diligence with Zest AI when we chose
    them to be our partner, have quarterly business reviews with
    Zest AI where we go over what we are seeing in our loan
    portfolio, both the loans that are decisioned by Zest and the
    loans that we have done manually. We look for ways to increase
    our usage with Zest. So it might be they say if you increased
    or adjusted your Debt-to-Income ratio (DTI) or your number of
    trade lines, you could increase your approvals by 10 basis
    points, but your risk stays stable, and your yield goes up.
        Those are the type of conversations that we have with Zest,
    a great partner and because of that, we have not received
    anything from our examiners that raise an issue with safety and
    soundness of our credit union.
        Mr. Fitzgerald. Very good. My time has expired. I will
    yield back.
        Chairman Barr. The gentleman yields back. The gentleman
    from Texas, Mr. Sessions, is now recognized.
        Mr. Sessions. Mr. Chairman, thank you very much. What a
    great opportunity for us to come and take what we regularly do
    in Washington, DC, to come back to these districts. I want to
    say to people who are back here, not just here today but also
    listening, that I believe that there is a lot of conversation
    that happens exactly in Washington, DC, that is happening here
    and that is how we connect more consumers with financial
    institutions to the benefit of consumers, to where they can
    make decisions about themselves, their future, and for their
    families.
        I would like to, if I can, after thanking you for bringing
    us here, to recognize that the conversations that you, John and
    Scott have had where really the word safety and soundness that
    we understand is important but the word security has sneaked
    into our lexicon.
        I would like to ask each of you--perhaps Stripe and Zest
    would offer their analysis first--but as we have gotten into a
    world where we are interconnected more and more, so have people
    through malware and other criminal activities sneaked
    themselves into what I would say the system, not just into an
    individual company. In Texas, which is where I am from, we have
    financial institutions that report time after time after time
    their customers being at risk because of malware and criminal
    activity.
        If I could just have you perhaps go down the line and talk
    with us about the activities that you believe either--whether
    you are receiving good information back from regulatory
    organizations, law enforcement, or others that will help you to
    stay leading edge. Thank you.
        Mr. Chartier. Sure, thanks for asking that. I think the
    safety and security of the data and of the customers is really
    important to us, and we have a team that works on that
    specifically. It is a pretty large team and uses a lot of
    analytics to understand what attacks are coming at us, how we
    help prevent those, implement additional security to do that.
        I think that from the regulatory or the oversight
    standpoint, or even the assistance standpoint from law
    enforcement, we find they are very helpful but somewhat
    overwhelmed right now with all of the things that are going on.
    So when you reach out and you say, hey, this is a problem our
    customers are having, they say, thank you, and they put it in
    the data base and get it shared rapidly but they cannot always
    do a lot to help the individual that might have been impacted.
        Mr. Sessions. Do you share that information, or do they
    share back with you, and do you think it goes across the
    organizations that might be banks, bankers?
        Mr. Chartier. Absolutely. We subscribe and others subscribe
    to the service that when you put that into the service, it gets
    shared across. We also have panels and other discussions that
    occur.
        Mr. Sessions. Thank you. Do we want to hear from Stripe or
    Zest?
        Mr. de Vere. Thank you for the question. So obviously,
    security is critical in the line of business that we are in.
    You are dealing with, obviously, banking information,
    individuals' personal information. We take that very seriously
    as an organization and have all the necessary protocols in
    place.
        I think the thing that I would offer or watch out for is
    that there are some other players that are coming into the U.S.
    from overseas and they are trying to service community banks
    and credit unions here in the U.S. Personal information is
    being sent overseas, which is a really great risk for our
    consumers.
        So what I would encourage from a Zest perspective is we use
    a cloud-based security system and have never had an issue but I
    would watch out, and I would offer to the congresspeople here
    that we do have players coming in from the outside that I think
    are putting an American consumer at risk.
        Ms. Roberti. I think we would not have a specific
    experience to add but just we feel an obligation to be
    guardians of the financial ecosystem as well. As technology
    improves for all of us, the bad guys are using technology as
    well and that is why I think we are heartened by regulators
    also embracing technology and taking strides there because I
    think they see it as a tool that we all need to combat
    cybercrime and other fraudsters that are happening online.
        Mr. Sessions. Do you believe that when you--would you spot
    this perhaps for a customer? Or do they spot it, and do they
    notify you? Or are they pretty silent about what they have?
        Ms. Roberti. No, I think it goes both ways. When we spot
    it, we have an obligation to raise it with law enforcement and
    we do that often.
        Mr. Sessions. Thank you very much.
        Thank you, Mr. Chairman. I yield back my time.
        Chairman Barr. The gentleman yields back. Last but not
    least, the gentleman from Nebraska, Mr. Flood, is recognized.
        Mr. Flood. Thank you, Mr. Chairman.
        Good morning. It is good to be here in Lexington, Kentucky,
    the horse capital of the world. When I look around Lexington
    and your district, Mr. Barr, I see a district that looks a lot
    like mine. I represent Lincoln, Nebraska, which is home to the
    University of Nebraska. Similarly, you have a flagship
    university right here and there are plenty of rural areas that
    are also in this district, full of hardworking, quality, sound
    and fit banks in all sizes throughout the State of Kentucky.
        Which brings us to the topic of this hearing. Third-party
    partnerships with banks and fintechs. I am really interested in
    the third-party fintech partnerships because community banks,
    in order to be successful, have to compete with the G-SIBs,
    with the banks like Wells Fargo and Bank of America. It is
    important, when you look at the Paycheck Protection Program
    (PPP), community banks, banks that have relationships with
    their customers, hit that program out of the park because they
    knew what their customers needed, they knew what they could
    take on, and they watched for fraud, and they protected the
    American taxpayers.
        Fintech partnerships can take lots of different forms,
    something as simple as a mobile banking app or an updated
    customer interface are the types of features that consumers and
    particularly younger consumers that will probably never go
    through a bank drive-thru, they will probably not walk into a
    bank and fill out a deposit slip and hand it to the teller.
    They are going to do everything on their phone. For me, it is
    very important that especially in rural areas, we have these
    third-party relationships.
        I am going to start with Mr. Trager. In your testimony, you
    made an interesting analogy comparing partnerships between
    banks and fintechs to the partnership between a restaurant and
    a delivery service like Uber Eats. Would you mind expounding on
    that analogy for our benefit?
        Mr. Trager.Thank you for the question. You know, it takes a
    village. I mean, when you are offering products to a lot of
    consumers that do not necessarily have standard access we need
    to partner with folks that help identify the consumers that are
    in need for us so that we can provide the funding that we
    plentifully have, or we have in a plentiful way.
        Yes, the example is a good example. You know, we are the
    Uber Eats. We generate more business for our partners, and then
    we help deliver that product. So they enable us to market and
    to get out and make our services be known to a very broad
    audience that we help deliver the product. That is what we
    bring to the table.
        Mr. Flood. Thank you for that.
        Ms. Harbin, can you provide some examples of products
    Republic Bank offers in partnership with fintechs that expand
    access to banking services to people that might otherwise be
    unbanked or the under-banked?
        Ms. Harbin. At Commonwealth Credit Union, we provide
    personal loans, auto loans, mortgage loans. We are able to go
    deeper with Zest AI. We actually have three of their models
    right now, auto loan, personal loan, and credit card. We have
    data that shows that we are going deeper into those protected
    classes.
        We have been with Zest AI since 2021, and that portfolio of
    loans has quite a bit lower delinquency and charge-offs than
    our entire portfolio. So we are very proud of that.
        We know that we have to compete on a larger level and the
    way that we can do that is with Zest AI. We do not have the
    funds for technology like the large megabanks. I think 17
    billion is something I read that one of the huge megabanks
    spent on technology. In contrast, last year, we spent about 9
    million.
        So we have to partner with fintechs to compete on the same
    stage for our members and to give them the products and
    services that they are looking for in the timeframe that they
    want it.
        Mr. Flood. I need to correct the record. You are with the
    credit union. You are the president and CEO of the Commonwealth
    Credit Union. I was also going to direct that to Mr. Trager,
    but I already hit him with one question, so I let him off the
    hook on that.
        One quick, very quick story. I had a 23-year-old guy that
    had helped--he works in my congressional office. My car was out
    of gas and he on his own accord went and filled it up. I said,
    well, what did you pay? He said $59. I wrote him a check. I
    handed him the check and he looked at it and he was like, what
    am I supposed to do with this?
        [Laughter.]
        Mr. Flood. That is a reminder of where we are and where we
    are going.
        Thank you. I yield back.
        Chairman Barr. The gentleman yields back. Thanks so much
    for these questions.
        With the indulgence of these witnesses, we are going to
    engage in a quick second round, lightening round if you will,
    where each of the members will have an opportunity to ask one
    final question. We will start here.
        Before I go to my final question, I do want to recognize
    State Senator Donald Douglas, who has joined us. We appreciate
    State legislatures taking a look at the innovation that is
    happening in financial services because obviously, you have a
    role to play as well.
        In that vein, let me ask my question to Mr. Chartier.
        You testified earlier today, and we have talked about this
    before. You have urged Congress to reverse the mistake that
    Congress made with invalidating the True Lender Rule from the
    OCC. You have urged Congress to reinstitute the OCC True Lender
    Rule and making Federal law applicable to all banking
    institutions and clarify these opt out authorities.
        Why is preemption, Federal preemption, so important in this
    space that is interstate commerce, and how would that enable
    more innovation and financial inclusion? Also, if you could,
    describe the problem to those who are watching.
        Mr. Chartier. Sure. Thanks for that question. I leave
    preemption to the lawyers and the bankers a little bit but I
    would say from a service provider, from a product developer,
    you want to get the largest market you can reach as thoroughly
    as you can. I talked about how there are populations--and
    certainly Steve talked about how banks have a problem serving
    certain populations, because you cannot evaluate them, because
    they cannot develop the technology that is necessary.
        When you go to put that investment into building a product,
    you want to reach as many markets as you can to increase the
    efficiency of the delivery of that so we can lower the prices,
    so we can be more competitive. When you go to do that in the
    U.S., you run up against State laws, because each State has
    instituted laws over 200 years that influence credit products
    that consumers or small businesses can get.
        When you go State by State, often they will have defined
    products. I always talk about they define for a consumer or a
    small business looking at credit. It is like a 10-story
    stairwell, and they want to get to the top but a State will
    come in and they will say you can have floors one through
    three, but you cannot have floors five and six, and then maybe
    we will give you eight as well. So people get trapped where
    they are because there are not products that fit the place they
    are in their credit or financial health journey. So the State
    environment makes that very difficult.
        The banks can come in with a steady--with a consistent
    product across all the states because of their preemption and
    they can deliver it to all those people and that allows people
    to move freely through a pathway of financial products back
    into regularized and more standard and traditional banking
    services. That is the importance. The OCC recognized the
    confusion that was out there and said, when the bank originates
    a loan, it is the bank's loan. If they then choose to manage
    their balance sheet by selling off some interest of that to
    make sure they are fitting the regulatory environment, that
    does not change anything. That is critical to us because that
    allows that uniform presentation of the product across all of
    the markets.
        Chairman Barr. Thank you. Mr. Rose?
        Mr. Rose. Thank you, Mr. Barr. I want to thank you again
    for hosting this hearing.
        Ms. Roberti, I want to pick up where I was when I ran out
    of time before. I just want to say I would urge Stripe and all
    payment processing companies to continue to accept cash. Sixty-
    seven percent of Americans still use cash for making in-store
    payments. My late colleague, Representative Payne, and I
    introduced the Payment Choice Act for this exact reason. Cash
    is king and Americans should not have their business refused
    for paying with legal tender.
        My question for you, are there any plans to remove cash as
    a payment option at Stripe in-person terminals?
        Ms. Roberti. No plans, Mr. Congressman.
        Mr. Rose. Super. That is great to hear. The civil
    libertarian in me says I want to see cash continue to be an
    acceptable form of payment and maybe even the next generation
    will come to appreciate it at some point.
        Thank you. I yield back.
        Chairman Barr. Mr. Fitzgerald.
        Mr. Fitzgerald. Many Fintech companies are pushing Congress
    to establish an optional and tailored Federal charter for
    payment companies. They are also seeking direct access to the
    national payments system. This would obviously bypass some of
    the bank partnerships and allow these companies to avoid the
    full spectrum of bank regulation.
        Ms. Roberti, you are familiar with it, and you have had
    some time to kind of consider what the challenges would be. If
    some of these bank regulations are unnecessary under such a
    charter, how would you still be able to scrutinize the safety
    and soundness of the fintech companies?
        Ms. Roberti. Thanks for the question. Look, I think in
    other parts of the world--so we are regulated. We have 80
    licenses across the globe and in other parts of the globe, we
    have different bespoke kinds of payments regulation.
        In the U.S., it is different. It is more binary. So you can
    either be a State-regulated, State-chartered payment entity
    with all the limitations that come with that, or you can be a
    full-fledged bank and there is not much in between. So I think
    what we would just encourage in partnership with State
    regulators and recognizing the great work of Conference of
    State Bank Supervisors (CSBS) and the modernization that has
    happened there, but we should just think about ways to
    innovate. It works in the rest of the world and with it comes
    supervision that is tailored for the level of risk that it
    presents.
        There is something between, like I said, the risk of a
    full-fledged bank offering loans and then payments. I do not
    think we have all the answers, but I think we would encourage
    the committee, as you have, and others to just take a look at
    what options are out there.
        Mr. Fitzgerald. Mr. de Vere, do you have a quick comment on
    that one? Very good, thank you.
        Chairman Barr. The gentleman yields. The gentleman from
    Texas, Mr. Sessions.
        Mr. Sessions. Mr. Chairman, thank you very much.
        From time to time, almost every time when we come into a
    hearing, we learn things that we did not know and that is
    because we have a staff that works regularly on some of the
    issues.
        I would like to go to Karen Harbin if I can. The question
    is that I learned from our notebooks here of our homework, the
    National Credit Union Administration, NCUA, does not have
    authority over third-party vendors who partner with credit
    unions.
        The question is, in your opinion, is this helpful or
    harmful and should this be recognized and give them the
    authority, or do you believe you have the knowledge and the
    resiliency to handle this yourself?
        Ms. Harbin. Thank you for that question. We believe that we
    do not need NCUA to have third-party vendor authority. We look
    at our third parties and do due diligence which is adequate. If
    NCUA had that authority, it would increase costs to credit
    unions because they would have to staff with experts that
    looked at all these vendor relationships, and it would
    ultimately cost credit unions a lot more money. So we do not
    support it.
        Mr. Sessions. So this allows you to be more nimble?
        Ms. Harbin. Yes, more flexible.
        Mr. Sessions. This allows you to make decisions that you
    would choose to make.
        Ms. Harbin. Exactly.
        Mr. Sessions. You do not believe that it would be
    necessary, so do not need to approach this issue.
        Ms. Harbin. Do not.
        Mr. Sessions. I found that very interesting as a question,
    because we tend to want to have the viewpoints that we want to
    give everybody an opportunity to go to third-party vendors but
    hold them accountable also. I found this as the most
    interesting question that has been unanswered here.
        I would come back to this question that I still have not
    just about safety and soundness but security. Did anybody else
    have feedback that they would like for us to know? Because I
    have heard the testimony that has been given that you believe
    that law enforcement does listen. You believe that law
    enforcement is perhaps doing the best that they can. Do you
    offer other feedback? Because I still believe the feedback that
    I have heard, albeit from a lot of Texas entities, is that
    there is still a huge concern about the numbers that keep
    adding up about the criminal elements of malware. Does anybody
    else have anything to add on that issue? Yes, sir.
        Mr. de Vere. The OCC, Comptroller of the Currency Hsu just
    recently was quoted about AI and fraud, or fraudsters out there
    that are leveraging AI today and the need for better tools.
        I think I would just add to your security comment and talk
    about the importance that organizations like Commonwealth and
    other financial institutions not only could leverage better
    technology like AI for underwriting, but you can also leverage
    AI to identify fraudulent behavior, that humans cannot find
    patterns, but the AI actually can. It will have a material
    impact if more and more financial institutions adopt this
    approach.
        In our recent release with one of our customers, we were
    able to eliminate 60 percent of the fraud just by focusing on
    the top 15 percent most risky applications that came through.
    That is a material impact. The average credit union is losing
    $500,000 a year to fraud.
        When we talk about security, I think it is also important
    to add in fraud and the opportunity that these types of tools
    have.
        Mr. Sessions. I would like to agree with you. I hear over
    and over in these conversations that larger or smaller
    organizations still learn a lot about the things that are
    evolving every day. At some point, it is hard to get
    necessarily what I would call a customer or end user to stay up
    with all those things. Perhaps it is people who you have only
    given a loan of several million dollars to, but they also find
    themselves in an attack.
        I am kind of looking for your feedback to tell me where you
    think that presentation should also include to where you give
    information back perhaps to your customers to where they can
    give information that flows all the way to the individual that
    says, here are the things that we believe you should include as
    leading edge security back into your own company.
        Mr. Chairman, thank you very much. This hearing, as I
    looked at what we were attempting to codify here into
    understanding about fintech relationships is being improved. I
    think it was worth my time to be here today. I yield back.
        Chairman Barr. Thank you. We do appreciate you and the
    other members making time to come to Kentucky.
        Finally, Mr. Flood from Nebraska.
        Mr. Flood. Thank you, Mr. Chairman. Again, thank you for
    the invitation to Lexington.
        This is for anyone that wants to maybe react to it in a
    very brief way. I am interested in what are regulators and
    examiners talking to you about when it comes to bank fintechs,
    partnerships. Are there things maybe they are misunderstanding?
    Are there things that you maybe think they are not looking
    closely enough at? What are those conversations with the
    examiners and the regulators like in your bank or credit union,
    and where do you think we are going with all this?
        Ms. Harbin. Thank you. I will answer that first.
        As I said before, we do a great deal of due diligence
    before we ever partner with a fintech. The examiners look for
    that. They also look that we are monitoring the portfolio, and
    we understand what is going on with the portfolio, and make
    changes and adjustments as needed if we see something getting
    out of hand, such as delinquency or charge-offs but our
    delinquency and charge-off using Zest AI is much better than it
    is in the overall portfolio.
        Mr. Trager. There is not much I can add to that. That is
    absolutely right. They are looking for thorough due diligence,
    oversight, and monitoring when it comes to partnering with
    third parties.
        Mr. Flood. Quick question about Kentucky, just so I can
    understand your banking landscape here. The mix between
    federally chartered banks and State chartered banks? In
    Nebraska, we have 139 State chartered banks. Now that is down
    from 180. We have seen a lot more folks move their charter from
    the OCC to the State side. What is happening in Kentucky? Are
    people moving to the State or are they moving to the fed?
        Mr. Trager. I think, I do not know, five, 6 years ago, it
    seemed like there was some movement toward the fed, toward
    that. I think that has kind of stabilized. At this time, I do
    not sense that there is a lot of movement.
        We are State chartered, FDIC. Primary--FDIC and the State
    are our primary regulators. You know, there is some benefit to
    familiarity. They are familiar with us, we are familiar with
    them.
        Given some of the innovative products that we have, it is
    very helpful from an education standpoint when they come in
    that we do not have to start from scratch and refamiliarizing
    them with the things that we do.
        Mr. Flood. As a State chartered institution, how is the
    Kentucky legislature looking at digital assets, digital asset
    custody? Is there a State regulatory framework that is in place
    or being talked about? Is it something you are interested in?
        Mr. Trager. I am not knowledgeable in that regard.
        Mr. Flood. It is pig Latin to most people over 35. I hear
    you.
        Mr. Trager. Right, right.
        Mr. Flood. I guess I ask because one of the questions we
    are going to have in Washington is, we have this question,
    there are a lot of folks on the other side of the aisle
    especially that want a Federal top-down thumb on everything
    when it comes to digital asset custody. For me, a State pathway
    is very, very, very important. As a State chartered institution
    working with your State senators and your State
    representatives, I really hope that the banks in the State of
    Kentucky can continue to be State regulated and not have to
    deal with some foreign power. The State of Kentucky should
    determine its own future in digital assets. When your customers
    and you feel like it is the right time to take custody of their
    digital assets, I hope that you can do that without burdensome
    interference from the Federal Government.
        With that, thank you, Mr. Chairman. I yield back.
        Chairman Barr. Spoken like a true former State legislator.
    For those of you who do not know, Congressman Flood was the
    speaker of the unicameral legislature in Nebraska. Thank you
    for sticking up for the Commonwealth of Kentucky from Nebraska.
        Mr. Flood. I am a Kentucky colonel.
        Chairman Barr. So thank you to all of my colleagues for
    making the trip today. Thank you to our witnesses.
        These field hearings are--they are hard to plan, because we
    are bringing Congress to the American people and it is
    expensive and it takes time and a lot of effort. I want to
    thank my staff for organizing this. It takes a lot of hard
    work. So Mary Rosado, my chief of staff, I want to thank Tatum
    Dale, my district director, and our entire district staff,
    Tyler Staker my communications director, Kaylee also for
    helping out. All of you all.
        Let me also thank the staff of the Financial Services
    Committee. Megan Guiltinan, my Financial Services Committee
    staffer, Jeff Reyes, who is the staff director of the FI
    subcommittee, Kathleen Palmer, David McGrath, Trish Halloren,
    Grace Tricomi, Beau Brooks, Glen Sears representing the
    Minority Staff, Rob Waggoner, and Jelia Megawati with
    Representative Rose. Thanks to all of you all for putting this
    together, and to our guests, thanks for being here.
        To our witnesses, we are so grateful for your insightful
    testimony.
        Without objection, all members will have 5 legislative days
    within which to submit additional written questions for the
    witnesses to the chair which will be forwarded to the witnesses
    for their response. I ask our witnesses to please respond as
    promptly as you are able.

        [The information referred to was not submitted prior to
    printing.]

        This hearing is now adjourned.

        [Whereupon, at 11:19 a.m., the subcommittee was adjourned.]

                                   [all]