[House Hearing, 119 Congress]
[From the U.S. Government Publishing Office]
DELIVERING FOR AMERICAN CONSUMERS:
A REVIEW OF FINTECH INNOVATIONS
AND REGULATIONS
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON DIGITAL ASSETS, FINANCIAL
TECHNOLOGY, AND ARTIFICIAL INTELLIGENCE
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED NINETEENTH CONGRESS
SECOND SESSION
__________
JANUARY 13, 2026
__________
Serial No. 119-50
Printed for the use of the Committee on Financial Services
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
www.govinfo.gov
__________
U.S. GOVERNMENT PUBLIISHING OFFICE
63-578 PDF WASHINGTON : 2026
=======================================================================
HOUSE COMMITTEE ON FINANCIAL SERVICES
FRENCH HILL, Arkansas, Chairman
BILL HUIZENGA, Michigan, Vice MAXINE WATERS, California, Ranking
Chairman Member
FRANK D. LUCAS, Oklahoma SYLVIA R. GARCIA, Texas, Vice
PETE SESSIONS, Texas Ranking Member
ANN WAGNER, Missouri NYDIA M. VELAZQUEZ, New York
ANDY BARR, Kentucky BRAD SHERMAN, California
ROGER WILLIAMS, Texas GREGORY W. MEEKS, New York
TOM EMMER, Minnesota DAVID SCOTT, Georgia
BARRY LOUDERMILK, Georgia STEPHEN F. LYNCH, Massachusetts
WARREN DAVIDSON, Ohio AL GREEN, Texas
JOHN W. ROSE, Tennessee EMANUEL CLEAVER, Missouri
BRYAN STEIL, Wisconsin JAMES A. HIMES, Connecticut
WILLIAM R. TIMMONS, IV, South BILL FOSTER, Illinois
Carolina JOYCE BEATTY, Ohio
MARLIN STUTZMAN, Indiana JUAN VARGAS, California
RALPH NORMAN, South Carolina JOSH GOTTHEIMER, New Jersey
DANIEL MEUSER, Pennsylvania VICENTE GONZALEZ, Texas
YOUNG KIM, California SEAN CASTEN, Illinois
BYRON DONALDS, Florida AYANNA PRESSLEY, Massachusetts
ANDREW R. GARBARINO, New York RASHIDA TLAIB, Michigan
SCOTT FITZGERALD, Wisconsin RITCHIE TORRES, New York
MIKE FLOOD, Nebraska NIKEMA WILLIAMS, Georgia
MICHAEL LAWLER, New York BRITTANY PETTERSEN, Colorado
MONICA DE LA CRUZ, Texas CLEO FIELDS, Louisiana
ANDREW OGLES, Tennessee JANELLE BYNUM, Oregon
ZACHARY NUNN, Iowa SAM LICCARDO, California
LISA McCLAIN, Michigan
MARIA SALAZAR, Florida
TROY DOWNING, Montana
MIKE HARIDOPOLOS, Florida
TIM MOORE, North Carolina
Ben Johnson, Staff Director
------
SUBCOMMITTEE ON DIGITAL ASSETS, FINANCIAL TECHNOLOGY, AND ARTIFICIAL
INTELLIGENCE
BRYAN STEIL, Wisconsin, Chairman
TOM EMMER, Minnesota, Vice Chairman STEPHEN F. LYNCH, Massachusetts,
BILL HUIZENGA, Michigan Ranking Member
WARREN DAVIDSON, Ohio BRAD SHERMAN, California
JOHN W. ROSE, Tennessee BILL FOSTER, Illinois
WILLIAM R. TIMMONS, IV, South JOSH GOTTHEIMER, New Jersey
Carolina AYANNA PRESSLEY, Massachusetts
MARLIN STUTZMAN, Indiana RITCHIE TORRES, New York
BYRON DONALDS, Florida SYLVIA R. GARCIA, Texas
ZACHARY NUNN, Iowa BRITTANY PETTERSEN, Colorado
TROY DOWNING, Montana SAM LICCARDO, California
MIKE HARIDOPOLOS, Florida
TIM MOORE, North Carolina
C O N T E N T S
----------
Tuesday, January 13, 2026
OPENING STATEMENTS
Page
Hon. Bryan Steil, Chairman of the Subcommittee on Digital Assets,
Financial Technology and Inclusion, a U.S. Representative from
Wisconsin...................................................... 1
Hon. Stephen Lynch, Ranking Member of the Subcommittee on Digital
Assets, Financial Technology and Inclusion, a U.S.
Representative from Massachusetts.............................. 2
STATEMENTS
Hon. French Hill, Chairman of the Committee on Financial
Services, a U.S. Representative from Arkansas.................. 4
WITNESSES
Ms. Jodie Kelley, Chief Executive Officer, Electronic
Transactions Association (ETA)................................. 4
Prepared Statement........................................... 7
Mr. Kevin Lefton, Global General Counsel, Stream................. 24
Prepared Statement........................................... 26
Mr. Ram Palaniappan, Founder and Chief Executive Officer, EarnIn. 30
Prepared Statement........................................... 32
Mr. Todd Zywicki, Law Professor, George Mason University Antonin
Scalia Law School.............................................. 40
Prepared Statement........................................... 42
Ms. Delicia Reynolds Hand, Senior Director, Digital Marketplace,
Consumer Reports............................................... 73
Prepared Statement........................................... 75
APPENDIX
MATERIALS SUBMITTED FOR THE RECORD
Hon. Bryan Steil:
Chamber of Progress60112.....................................
National Asian/Pacific Islander American Chamber of Commerce
and Entrepreneurship (National ACE)........................ 114
Labor Council for Latin American Advancement (LCLAA)......... 117
UnidosUS Action Fund......................................... 119
Maxine Waters:
America's Credit Unions...................................... 121
National Multifamily Housing Council (NMHC), the National
Apartment Association (NAA), and the Real Estate Technology
and Transformation Center (RETTC).......................... 123
Center for Responsible Lending (CRL)......................... 126
Hon. Bryan Steil and Hon. Maxine Waters:
U.S. Black Chambers, Inc. (USBC)............................. 135
RESPONSES TO QUESTIONS FOR THE RECORD
Written responses to questions for the record from Representative
Bryan Steil
Mr. Kevin Lefton............................................. 138
LEGISLATION
H.R. ------, the Earned Wage Access Consumer Protection Act...... 141
H.R. ------, the Fostering the Use of Technology to Uphold
Regulatory Effectiveness in Supervision (FUTURES) Act.......... 156
H.R. ------, the Financial Services Innovation Act of 2026....... 164
H.R. ------, the Model Risk Management Modernization Act......... 182
DELIVERING FOR AMERICAN CONSUMERS:
A REVIEW OF FINTECH INNOVATIONS
AND REGULATIONS
----------
Tuesday, January 13, 2026
U.S. House of Representatives,
Subcommittee on Digital Assets, Financial
Technology,
and Artificial Intelligence,
Committee on Financial Services,
Washington, DC.
The subcommittee met, pursuant to notice, at 10:08 a.m., in
room 2128, Rayburn House Office Building, Hon. Bryan Steil
[chairman of the subcommittee] presiding.
Present: Representatives Steil, Hill, Huizenga, Davidson,
Rose, Timmons, Downing, Haridopolos, Moore, Lynch, Waters,
Sherman, Foster, Pressley, Torres, Garcia, and Liccardo.
Chairman Steil. The Subcommittee on Digital Assets,
Financial Technology, and Artificial Intelligence will come to
order.
Without objection, the chair is authorized to declare a
recess of the committee at any time.
Today's hearing is titled, ``Delivering for American
Consumers: A Review of FinTech Innovations and Regulations.''
Without objection, all members will have 5 legislative days
within which to submit additional material for the chair for
inclusion in the record.
Chairman Steil. I now recognize myself for 4 minutes for an
opening statement.
OPENING STATEMENT OF HON. BRYAN STEIL, CHAIRMAN OF THE
SUBCOMMITTEE ON DIGITAL ASSETS, FINANCIAL TECHNOLOGY AND
INCLUSION, A U.S. REPRESENTATIVE FROM WISCONSIN
Technology continues to revolutionize our financial system,
from payments to newer applications, like earned wage access.
Digitalization, cryptography, and artificial intelligence give
consumers faster, cheaper payment, flexible access to earned
income, and new ways to manage everyday purchases. These
innovations have the potential to improve Americans' financial
well-being by making their day-to-day finances more practical,
predictable, and affordable.
Historically, workers were paid when they earned wages, yet
today, many workers in our economy go home without their
earnings. Holding an employee's pay until the end of a payroll
cycle is a relatively modern practice. Earned wage access helps
restore this link between work and pay by allowing workers the
flexibility to access their wages as they earn them. This
flexibility can help families deal with unexpected expenses,
from medical bills to car repairs, or simply pay recurring
bills timelier. By providing timely access to earned income,
Earned Wage Access (EWA) can help Americans achieve their
financial goals and help businesses improve worker
satisfaction, retention, and overall productivity.
Importantly, innovations, like EWA and buy now, pay later
options, often coexist and intertwine with traditional
financial institutions. Banks and other lenders are vital
partners with financial technology (fintech), providing
liquidity and credit as well as access to infrastructure like
payment rails. These partnerships provide more efficiency and
options for consumers and create new products to enhance
competition. Our financial institutions can also benefit from
partnering with fintech companies by enhancing their offerings
and allowing small and community institutions to deploy
cutting-edge tools.
As we explore the benefits of fintech innovation, we must
make sure that our regulatory framework is fit for purpose. A
well-functioning framework for fintech should focus on risks
posed by specific activities, not the identity or business
model of the provider. Fintech products that meet consumer
demand and improve Americans financial lives should have clear,
practical legal pathways for operation and strong consumer
protections. By supporting thoughtful and balanced regulation,
we can encourage innovation while ensuring consumer protection
and promoting financial well-being for American households and
businesses alike. Today's hearing will inform these efforts,
and I thank our witnesses for their upcoming testimony.
I will now recognize the ranking member of the
subcommittee, Mr. Lynch, for 4 minutes for an opening
statement.
OPENING STATEMENT OF HON. STEPHEN LYNCH, RANKING MEMBER OF THE
SUBCOMMITTEE ON DIGITAL ASSETS, FINANCIAL TECHNOLOGY AND
INCLUSION, A U.S. REPRESENTATIVE FROM MASSACHUSETTS
Mr. Lynch. Thank you very much, Mr. Chairman. I also would
like to thank our witnesses for your willingness to come
forward and help the committee with its work. This hearing
continues our committee's work to examine fintech innovation,
including the use of fintech liquidity products, such as buy
now, pay later services and earned wage access. This is an area
of great promise and potential to overcome preexisting barriers
and to expand economic opportunity if we include proper
guardrails that assure necessary consumer protections. This
hearing continues our work, and these products present an
attractive source of capital liquidity to help people meet
short term needs. However, some consumer advocates and other
stakeholders have pointed to multiple consumer protection
concerns associated with fintech business models that
incorporate hidden fees, lack meaningful underwriting and are
not subject to adequate oversight, and they may target
vulnerable consumers with deceptive claims about credit
building.
With the use of these products surging since the beginning
of the coronavirus disease 2019 (COVID-19) pandemic, our
committee's work on this issue has become increasingly vital to
ensure that the proper oversight and adequate consumer
protections are in place. As ranking member of this
subcommittee, I participated in multiple hearings to examine
the proliferation of fintech-powered earned wage access
services that enable employees to receive a cash advance on
their paycheck prior to payday, often at an inflated fee or at
the cost of a voluntary so-called tip. Whether offered through
an employer or through a direct-to-consumer provider, this on-
demand pay market has grown rapidly with employers and
providers now advancing billions of dollars in wages to
millions of employees annually.
As reported by the Harvard Kennedy School in a recent study
on the proliferation of earned wage access products, 40 percent
of the people who have access to an earned wage access
application through their employer use it at least once a week.
Over 75 percent of respondents indicated that they were using
their money to pay for regular bills rather than emergency
expenses, with one typical user noting, ``It just turned into a
cycle of always taking money out.'' Moreover, the rush fees,
tipping options, and other hidden charges associated with
certain business models--not all--collectively amounted to an
estimated annual percentage rate of more than 300 percent in
some cases. Similarly, a growing number of consumers are now
relying on buy now, pay later services to make ends meet. With
Federal Reserve data indicating that nearly a hundred million
Americans used buy now, pay later at least in 2025. These
services, which allow consumers to pay for purchases over
multiple partial payments, are now widely available at checkout
both online and in person, where a customer can opt into
services and receive approval in minutes without a hard credit
check.
Despite purporting to offer free services, some buy now,
pay later loans, especially longer-term loans, can ultimately
be more costly than using a traditional credit card. The
Federal Reserve reports that nearly one-fourth of buy now, pay
later users did not make payments on time and faced later fees.
Considering the proliferation of buy now, pay later, earned
wage access, and other fintech liquidity products, the consumer
protection and enforcement mission of the Consumer Financial
Protection Bureau is more important than ever.
Unfortunately, President Trump does not agree. The Trump
Administration has undertaken unprecedented and unlawful
efforts to dismantle the very agency that should be protecting
consumers against fraud and exploitation in this very area,
including the issuance of cease work orders that halted
virtually all Consumer Financial Protection Bureau (CFPB)
enforcement supervision and enforcement functions, the
abandonment of dozens of pending enforcement cases, and the
attempted termination of about 90 percent of CFPB Agency staff.
I urge my colleagues to defend the CFPB in the face of these
attacks. It will help with the innovation that we all desire to
see in this wage space. Thank you, Mr. Chairman, and I yield
back the balance of my time.
Chairman Steil. The gentleman yields back. I now recognize
the chairman of the full committee, Mr. Hill, for 1 minute for
an opening statement.
STATEMENT OF HON. FRENCH HILL, CHAIRMAN OF THE COMMITTEE ON
FINANCIAL SERVICES, A U.S. REPRESENTATIVE FROM ARKANSAS
Chairman Hill. Thank you, Chairman Steil, for your great
leadership of our subcommittee. This hearing is really deeply
personal for me. For the past 4 decades as a former community
banker and investor, I have seen how technology has expanded
across banking, sharpened competition, and broadened choices
for consumers and financial products. Earlier, as a payment
system innovator, I witnessed banks' strong demand for modern
tools and how meeting that demand delivered real benefits for
our customers across the board. This committee has long
championed innovation and responsible partnership between
traditional financial institutions and technology companies.
That commitment is now more important than ever. We should
encourage regulators to foster those partnerships, unlock
innovation, and reduce unnecessary regulatory burdens. I look
forward to the discussion today on how we can work together to
promote innovation, strengthen competition, and expand consumer
choice. Thank you Mr. Chairman, and I yield back.
Chairman Steil. The gentleman yields back. Today, we
welcome the testimony of Jodie Kelley, chief financial officer
of the Electronic Transactions Association; Mr. Kevin Lefton,
global general counsel at Stream; Mr. Ram Palaniappan, founder
and chief executive of EarnIt; Todd Zywicki, law professor at
George Mason University at the Antonin Scalia School of Law;
and Delicia Reynolds Hand, senior director of digital
marketplace at Consumer Reports. We thank each of you for
taking the time to be here. Each of you will be recognized for
5 minutes to give an oral presentation of your testimony.
Without objection, your written statements will be made
part of the record.
Ms. Kelley, you are now recognized for 5 minutes for your
oral remarks.
STATEMENT OF JODIE KELLEY, CHIEF EXECUTIVE OFFICER, ELECTRONIC
TRANSACTIONS ASSOCIATION
Ms. Kelley. Thank you. Chairman Hill, Chairman Steil,
Ranking Member Lynch, and members of the subcommittee, thank
you for the opportunity to testify today. My name is Jodie
Kelley, and I am the chief executive officer of the Electronic
Transactions Association, or ETA, the leading trade association
representing the global payments industry. Our members, from
banks and networks to fintech innovators, process more than $57
trillion in transactions annually and power commerce for
millions of American consumers and businesses. Today, I would
like to make three points. First, digital payments are
essential national infrastructure, delivering enormous value to
consumers and small businesses. Second, this innovation already
operates within a robust regulatory framework. Third, targeted
Federal leadership, especially on fraud and artificial
intelligence, can strengthen that framework without slowing
innovation.
Payments have evolved from cash and checks into a secure
digital ecosystem that underpins daily economic life. Payments
are how Americans get paid, pay bills, run businesses, and
manage emergencies. Digital payments enhance affordability by
expanding consumers' effective spending power. Credit cards,
buy now, pay later options, and cash back rewards help families
manage unexpected expenses and smooth cash-flow. In 2024 alone,
consumers received more than $43 billion in cash back rewards.
Those are real dollars returned to real household budgets. For
small businesses, digital payments are now table stakes.
Entrepreneurs can start businesses with a smartphone and accept
payments instantly. Embedded payments integrated directly into
business software allow small firms to manage sales, payroll
taxes, and compliance all in one place.
Businesses that accept digital payments see sales increase
by 8 to 10 percent, and the efficiency gains are significant.
In 2024, faster checkout and back office automation saved small
businesses an estimated 806 million labor hours and generated
$34 billion in incremental sales. At the national level, the
payments ecosystem contributes more than $350 billion annually
to gross domestic product (GDP) and directly supports
approximately 2 million U.S. jobs: high-quality, good-paying
jobs across every State.
The industry continues to evolve through mobile wallets,
peer-to-peer payments, embedded finance, and AI-driven fraud
prevention. Artificial intelligence is now central to payment
security. AI systems detect sophisticated fraud in real time,
often before consumers are harmed, while reducing false
declines and improving customer experience. Looking ahead,
agentic commerce, where AI agents transact on behalf of
consumers and business, offers real promise, but trust,
authorization, and accountability must remain foundational.
Now, this payments innovation does not occur in a
regulatory vacuum. Payments providers operate under a
comprehensive framework of Federal and State laws covering
consumer protection, anti-money laundering sanctions, privacy,
cybersecurity, operational resilience, and licensing. In
addition, the industry has developed strong self-regulatory
standards, including Payment Card Industry Data Security
Standard (PCI DSS), Europay, Mastercard, and Visa (EMV)
specifications, and network-level rules. This activity-based
approach has protected consumers while allowing innovation to
flourish.
While new legislation is largely unnecessary, two areas do
stand out for Federal leadership. The first is fraud and scams.
Fraudsters increasingly rely on social engineering and AI-
driven deception. The payments industry invests billions of
dollars annually to combat fraud, but payments are often the
final step in scams that begin elsewhere on social media,
through text messages, or over the phone. ETA supports enhanced
cross-sector collaboration and legislation, like the bipartisan
Taskforce for Recognizing and Averting Payment Scams (TRAPS)
Act, to disrupt scams at their source. The second area is
artificial intelligence. AI in payments is already governed by
Federal consumer protection and safety and soundness rules.
However, a growing patchwork of State AI laws threatens to
fragment national payment systems. ETA urges Congress to
establish a uniform, risk-based, technology-neutral AI
framework that builds on existing laws.
The digital payments industry delivers extraordinary
benefits to American consumers, small businesses, and the
broader economy. We look forward to working with Congress to
help ensure payments innovation continues to deliver secure,
affordable, and innovative financial services. Thank you, and I
look forward to your questions.
[The prepared statement of Ms. Kelley follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Chairman Steil. The gentlewoman yields back. Mr. Lefton is
recognized for 5 minutes.
STATEMENT OF KEVIN LEFTON, GLOBAL GENERAL COUNSEL, STREAM
Mr. Lefton. Thank you. Chairman Steil, Ranking Member
Lynch, and distinguished members of the committee, thank you
for your time today and for the invitation to speak about
earned wage access and its importance to consumers everywhere.
My name is Kevin Lefton, and I am the global general counsel of
Stream. In this capacity, I oversee the legal and regulatory
functions for our organization. Stream is an employer-
integrated, earned wage access provider operating across the
United States, United Kingdom, EU, and Canada. In addition to
EWA, we provide a comprehensive suite of financial well-being
resources designed to enhance the financial health of our
users.
Stream, alongside many of our industry peers, remains a
staunch advocate for thoughtful regulation that prioritizes
consumer protection. We stand as an important non-credit
alternative to the high-cost products that trap consumers in a
cycle of debt. It is a fundamental premise of my testimony
today that EWA services do not constitute credit, are not
loans, and should not be regulated as such. EWA is a critical
tool for frontline and hourly workers in all industries,
including healthcare, hospitality, manufacturing, education,
and many others. By allowing employees to access wages they
have already earned but have not yet been paid due to
traditional biweekly or monthly payroll cycles, EWA provides a
low-to no-cost alternative to the high interest rates and high-
cost fees of other financial products.
We cannot talk about EWA without talking about the
essential consumer-focused benefits and consumer protections of
EWA's benefits and protections that are absent in credit and
other high-cost products. EWA lacks all the hallmarks of
traditional credit and loan products. Specifically with Stream,
there is always a free option to use our service, and the
nominal fee for instant access should a consumer choose to use
that feature is typically lower than a standard automated
teller machine (ATM) withdrawal fee. There is no interest.
There is no underwriting. We do not pull credit reports or base
access to EWA services on creditworthiness. There is no debt
collection. We do not report to the credit bureaus or engage in
collection activity of any kind. The service is truly
nonrecourse, and no debt is ever incurred. If there is ever an
issue, Stream does not go after the consumer. We do not sue
them, and we do not report them to debt collections.
The arguments that are often presented against earned wage
access are flawed because they conflate a nonrecourse financial
wellness tool with a high-cost lending product. Labeling EWA as
credit ignores the basic reality that workers are simply
accessing capital they have already earned. Applying a
traditional credit framework, like an interest rate, to a non-
credit product is misleading and, ultimately, harmful to the
millions of hardworking Americans who simply want the option of
having access to their own wages so that they can manage their
own money when they see fit. Applying a traditional credit
framework, like an annual percentage rate (APR), to a flat,
nominal, transparent fee is also misleading and creates a false
protection that would effectively ban a low-cost or free
service. These arguments do not protect consumers. They limit
consumer options and force them back toward the very high-
interest and high-cost fees that EWA was designed to eliminate.
A lot has been written about EWA, and there is a lot of
misleading information out there, but here are the key
takeaways I would like to leave you with about EWA. EWA is
either free or has a nominal fee. There is no interest. There
is no debt collection. There is no underwriting. EWA is a
nonrecourse service, and, most importantly, there is nothing
wrong with allowing American consumers to decide how and when
they can access their money through a product and service they
want and like. EWA represents a shift toward a more equitable
financial system for hourly and frontline workers, allowing
them to better plan for the future and manage life's
emergencies with dignity. We urge this committee to support a
framework that recognizes EWA as a critical non-debt solution
for the American worker.
Thank you for your time and I look forward to your
questions.
[The prepared statement of Mr. Lefton follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Chairman Steil. Thank you. Mr. Palaniappan, you are now
recognized for 5 minutes.
[No response.]
Chairman Steil. You may you want to check your microphone.
Mr. Palaniappan. Better now? Okay.
STATEMENT OF RAM PALANIAPPAN, FOUNDER AND CHIEF EXECUTIVE
OFFICER, EARNIN
Mr. Palaniappan. Thank you. Chairman Steil, Ranking Member
Lynch, and members of the subcommittee, thank you for the
opportunity to testify today. My name is Ram Palaniappan. I am
the founder and CEO of EarnIn, and I am honored to return and
contribute to the discussion on how financial innovation can
improve the lives of American consumers. Paying bills and
managing expenses is top of mind for people every day.
Innovation helps with that by making pay more timely and
efficient. Innovations last only if they actually make people's
lives better and earned wage access is an example of such
innovation. Its use is growing because of the real impact that
it has on people's lives. EarnIn started as an earned wage
access company and now also offers a modern payroll platform
that is used by over 10,000 companies, along with consumer
tools that make the way people experience their pay better.
Today, about 1 percent of the people in the U.S. who get a
paycheck use EarnIn to access all or part of their pay.
The idea for EarnIn started when I was working at another
company. I heard that some of my employees were struggling
between paychecks. That surprised me because they were paid
well. I spoke with one of them. She said she needed money the
next day, and could not wait until the following Friday, which
was payday. She had already worked the hours, she had earned
the money, but payday was still days away. The issue was not
how much she earned; it was when she got her pay. I could not
get the payroll system to pay up for the hours that she had
already worked, so I gave her the money that she had already
earned, and we settled it when payroll ran, and I continued
helping many other of my employees the same way, just as
happens with many other small businesses. What began as a one-
time solution has become a reliable way for people to pay their
bills on time and avoid expensive fees. EarnIn started with the
simple idea that people should have access to the money that
they have already earned when they want it, not when payroll
decides.
Today, most employees are paid digitally, but these digital
dollars move more slowly than any other digital product. You
work every day, and then you are paid once in 2 weeks or maybe
once a month. Just imagine if other digital products worked the
same way. If your phone said type your text messages every day
and it would send them out every 2 weeks, you would not use
that, but that is how payroll still works today. The biweekly
or monthly pay cycle is a relic of an outdated era that is
holding back the benefits of efficiency and today's technology
from the people who need it the most. By shortening the work-
to-pay gap, EarnIn helps people manage everyday expenses, like
groceries, rent, utility and transportation. We are proud to do
this in a way that puts the worker first without mandatory
fees, interest, or credit checks.
Multiple independent research studies have confirmed that
workers are better off when they have access to their pay when
they need it. A study by researchers at the University of
Oregon on over a million EarnIn customers found a sustained
monthly increase of 11-and-a-half percent in incomes. That is
about $335 on average. Users work more shifts, miss work less,
and manage their finances better. Another study from University
of California, Los Angeles (UCLA) on a dataset from a different
provider found similar results. Incomes went up over 10
percent. Liquidity acts as upward mobility with reduced
overdrafts and no debt cycles.
Behind the data are millions of real people. One customer,
a government employee, has a side business making custom
candles. He used to wait until payday once he received an order
to buy his supplies. Now he uses EarnIn, and as soon as he
receives an order, he buys his supplies. That has let him do
more orders a month and increased his income. Another EarnIn
customer, Rae, a Southern California mother and retail
supervisor who is undergoing cancer treatment, shared that on
some days she feels better than others. Payday does not always
align with when she is feeling better, but EarnIn gives her the
flexibility and peace of mind, allowing her to take her
daughter out on good days without being restricted by paycheck
timing.
Earned wage access can be delivered in different ways,
including through employer-integrated programs or directly to
workers. The direct-to-consumer model means employees can
access the benefits wherever they work. Today, EarnIn serves
over 2 million customers, including many in public service,
healthcare, education, and small businesses across the country.
Notably, about 1 percent of House staffers use EarnIn.
I appreciate Chair Steil and Representative Torres for
their bipartisan leadership to establish a clear Federal
framework for earned wage access, and I look forward to
continued collaboration in expanding access to these
innovations to workers anywhere. I am happy to answer
questions. Thank you.
[The prepared statement of Mr. Palaniappan follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Chairman Steil. Thank you very much. Mr. Zywicki, you are
now recognized for 5 minutes.
STATEMENT OF TODD ZYWICKI, LAW PROFESSOR, ANTONIN SCALIA LAW
SCHOOL, GEORGE MASON UNIVERSITY
Mr. Zywicki. Thank you. Chairman Hill, Chairman Steil,
Ranking Member Lynch, and members of the subcommittee, I am
Todd Zywicki. I am the George Mason University Foundation
Professor of Law at Antonin Scalia Law School, the former chair
of the CFPB Task Force on Federal Consumer Law, and co-founder
and co-director of the Institute for Consumer Financial Choice
at the Scalia Law School.
The modern American consumer finance system is really a
miracle if you think about it. You can walk into a car
dealership today and walk out an hour later with a car. I mean,
just think about how transformative that has been for the
world. As Ms. Kelley mentioned, we can make payments anywhere
in the world 24 hours a day--day, night, online, in person--
anywhere in the world. As Congressman Lynch mentioned in his
opening statement, I think very notably, just think about the
way in which access to innovation and financial services helped
us to deal with the disruptions of the COVID pandemic and the
ability of people to bank online, pay online, do all these
sorts of things, as well as the alternative underwriting models
that were developed for data when people were not getting paid
and the like.
Above all, it is really democratized access to financial
services. Innovation, more than anything, has been a vehicle
for including people who traditionally have been underincluded
by the traditional finance system, and how did this happen?
Choice, competition, innovation is, basically, what has
happened: new entry, often obstructed, often blocked by old
incumbents, but new innovative technologies. Thinking back to
the development of the Fair Isaac Corporation (FICO) score and
the introduction of computers, which reduced discrimination,
which opened competition. Think about even the telephone and
the way in which telephones allowed credit cards to be marketed
across State law. Think about payments. Just think about the
way in which technology enabled us to go from knuckle busters
on credit card processing to always on instant verification at
a checkout, and most recently, of course, the development of
the internet.
Some of these innovations were really just developments of
a better way of delivering an older product, such as buy now,
pay later (BNPL), which replaces old installment loans, or EWA
as we have heard about, which helps consumers or employees get
money from their employers. Sometimes they are totally new,
such as alternative data and underwriting systems and some of
the payment systems we see today. Regardless of what they are,
one thing they have in common is they must have a regulatory
regime that supports innovation and that does not block it.
An obvious point is that the regulation must reflect the
technology, as we said, whether it is the Supreme Court's
decision, the Marquette decision, that allowed credit cards to
be marketed across State lines more effectively, whether it was
debt collection rules that dealt with the telephone and the
fact that you could then make phone calls across State lines,
but second, it always also requires the right jurisdiction to
deal with things. We went from a period of local credit to a
period of national credit driven by department stores and the
like, to what we have today, which is nowhere and everywhere
via the internet. We have to have the right jurisdictional
bodies acting on a lot of these things.
So, we saw in the 1960s and 1970s, as the consumer finance
system became more national, we saw more national laws dealing
with Equal Credit Opportunity Act (ECOA), dealing with debt
collection and the like. The products that are the focus of
today's hearing are a good example. These are products that are
offered on the internet. They do not bear any relationship to
local jurisdictional boundaries and the like, and so thinking
about sophisticated and appropriate places for the Federal
Government to regulate and to, even when necessary, preempt
State laws, I think that are important.
I am very pleased with a lot of the innovations and reforms
in the regulatory framework of the past few years, whether it
was the recent decision by the Office of the Comptroller of the
Currency (OCC) to recognize national trust banks for fintech
firms, whether it was the CFPB's actions with respect to some
of the regulations that they did, the decision of the CFPB to
keep the 1033 rule and reframe it in a way that is more useful.
I think there is a lot more that could be done, and I think a
lot of the legislation that is the subject of this hearing
moves in the right direction in terms of opening up
competition, national markets in a more resilient in more
responsive, technologically based regulation.
In conclusion, history teaches that consumers do best when
we recognize their ability to plan their own finances and we
give them choice, competition, and the ability to plan their
own lives, and not substitute the judgment of bureaucrats for
American families. Thank you.
[The prepared statement of Mr. Zywicki follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Chairman Steil. Thank you very much. Ms. Reynolds Hand, you
are now recognized for 5 minutes.
STATEMENT OF DELICIA REYNOLDS HAND, SENIOR DIRECTOR, DIGITAL
MARKETPLACE, CONSUMER REPORTS
Ms. Reynolds Hand. Thank you. Chairman Hill, Chairman
Steil, Ranking Member Lynch, and distinguished members of the
subcommittee, thank you for the opportunity to testify today.
My name is Delicia Reynolds Hand, and I am the senior director
of the Digital Marketplace at Consumer Reports. There, I lead
our work ensuring digital financial products work for
consumers, not against them. Before Consumer Reports, I spent
nearly a decade at the CFPB.
This hearing asks an important question--is fintech
delivering for American consumers--and I would like to make
three points. First is affordability. Affordability is key for
consumers. Americans are stretched thin. Groceries and rent
cost more, and credit card rates are near historic highs. In
this environment, consumers will turn to products like buy now,
pay later and earned wage access to manage cash-flow. This in
itself is not a problem. The problem is when they cannot easily
see what they are paying, they cannot compare options, and debt
stacks invisibly across providers. The CFPB's own recent data
point on buy now, pay later shows that BNPL usage continues to
grow. Consumers are now taking an average of six loans per year
from a single provider, up 11 percent, and that is just one
lender. Many consumers use multiple providers, creating
obligations that do not appear on traditional credit reports.
Simple guardrails, such as cost disclosure, lets people compare
options, and other guardrails against debt stacking allow
consumers to avoid invisible overextension. These are not anti-
innovation. They are baseline requirements for a market that
works.
On earned wage access, we are glad to see the draft
legislation before you contains real protections, like a no-
cost option, disclosure rules, prohibition on late fees.
However, we are concerned that the bill also categorically
excludes EWA from credit law and preempts State authority.
Under the Truth in Lending Act, credit is defined as ``the
right to defer payment of debt or incur debt and defer its
payment.'' If it works like credit, we should regulate it like
credit, and by that measure, EWA is credit.
Second, consumers need accountability, especially for new
innovation like AI. AI is no longer emerging in financial
services. It is embedded. It is approving loans, freezing
accounts, flagging fraud, as mentioned, determining who gets
access to products at what price. These systems operate at
machine speed, and if something goes wrong, accountability
moves slowly, if it moves at all. Consumer Reports recently
surveyed over 4,000 Americans on AI in financial services.
Three-quarters are concerned that AI could lead to unfair
treatment. When consumers encounter AI, many also report
negative experiences. Fifty-seven percent do not believe
current laws adequately protect them.
Consumers should have the ability to opt out independent
audits, a simple way to appeal, and public reporting on
accuracy and bias testing; in other words, transparency,
accountability, and human review. The subcommittee is
considering the Financial Services Innovation Act, which would
create sandboxes allowing companies to seek waivers from
existing consumer protection rules, not just for AI, but for
any financial innovation, and that just gets the burden wrong.
Consumer harm during a test period is still harm, and the
consumer whose account is frozen or wrongfully denied credit
does not care whether it happened in a sandbox.
Last, enforcement. I spent nearly a decade at the CFPB. I
have seen what happens when we have an Agency that is active
and mandating and holding its mandate to hold institutions
accountable, and we are seeing what is happening when that
capacity is dismantled. The CFPB has lost the majority of its
enforcement capacity. Staff have been let go. Examinations have
stopped. The Agency Congress created to be the cop on the beat
is being hollowed out, and at the same time, this subcommittee
is considering important legislation that would expand fintech
activity and waive existing protections. That is a practical
problem, not a solution. Who will supervise compliance with the
EWA bill's disclosure requirements if no one is there to do it?
Who investigates when AI systems malfunction at scale? The
bills before you assume a functioning regulator from a consumer
protection standpoint, and assumption no longer holds.
So, the question today is not whether fintech innovation
should continue. It absolutely should, but the question is
whether consumer protections scale alongside with it, or
whether consumers remain the shock absorbers for risk. We are
ready to work with the subcommittee. We have tested the
products' surveyed consumers, and I appreciate the opportunity
to be here and welcome your questions. Thank you.
[The prepared statement of Ms. Reynolds Hand follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Chairman Steil. Thank you very much. The gentlewoman yields
back. We will turn now to member questions. I will recognize
myself for 5 minutes for questions.
Mr. Palaniappan, we are at a transformational stage here.
EWA gives individuals access to the wages they earned. If you
and I, a hundred years ago, were hired to carry sacks of
potatoes at Ms. Kelley's farm, we worked our tails off all day
long, we would expect to have been paid at the end of our day's
work. Large enterprise resource planning (ERP) systems came in
and made it very difficult to pay people every day. Now many
people get paid every 2 weeks, some people every month. It
makes it hard to meet the bills and so, one of the questions
becomes, how do we regulate this new space under earned wage
access where individuals are receiving access to the wages that
they have already earned?
Attached to this hearing is my discussion draft, the Earned
Wage Access Consumer Protections Act, where we start to dig
into this, making sure that there is a no-cost option, full
disclosures for individuals taking advantage of EWA products
and so, one of the questions is, is this credit? Do we need a
new regulatory framework? We just heard Ms. Reynolds Hand
suggest that this is credit and should be regulated like
credit, but if we were carrying sacks of potatoes at Ms.
Kelley's farm, we would expect to get that money at the end of
the day, and it sure does not sound like credit. It sounds like
I am getting access to the money that I earned. So, I come to
you, Mr. Palaniappan. Can you walk me through the distinctions
that you see between EWA products and credit under the Truth in
Lending act in Reg Z?
Mr. Palaniappan. Sure. So, like you said, what earned wage
access does is it changes the timing of when somebody receives
their pay, which is different than a credit product where you
are giving somebody money and I think calling it what it is
not, calling it credit actually confuses the customer because
with the credit product, they expect interest to accrue. They
expect there to be a repayment date. They expect that there
will be penalties if it does not get paid. They expect that
there will be collections. They expect that it is going to
affect their credit report. None of those happen with earned
wage access, and so calling it credit actually will confuse the
customer. In terms of the legal aspects of credit, I think
Kevin, who is an attorney, might actually be better positioned
to talk about how it is different to credit.
Mr. Lefton. Sure. Thank you. I think that is an important
question and probably one of the most important questions of
today. The Truth in Lending Act (TILA) and Reg Z apply to
consumer credit that is subject to a finance charge, and EWA is
not consumer credit, and I will explain, and the flat fee is
not a finance charge. The CFPB recently stated in its December
23 advisory opinion that EWA is not credit because no debt is
incurred. You must have a debt to have credit, and a debt is an
obligation to repay.
Chairman Steil. Should we think of that as a distinction
between employer-sponsored EWA and direct-to-consumer EWA?
Mr. Lefton. No.
Chairman Steil. That is part of the conversation that we
are hearing.
Mr. Lefton. No, I think that is a great question, but no
debt is no debt. So, if there is no obligation to repay on the
direct-to-consumer and there is no obligation to repay on the
employer-integrated, I think it is the same. I think the
fundamental question is, is there an obligation to repay, and
the answer is no for EWA because it is a nonrecourse product.
Chairman Steil. So, Mr. Zywicki, I am going to come to you
and kind of continue to pull on this same string. One of the
challenges that we face are these new and innovative products
are not always fitting neatly into the regulatory framework
that, really, has not been updated since the 1970s, and so this
is new technology that was not around and available now over 50
years ago. What are some of the principles that you think we
should be looking at to strike the right balance in this
innovative space?
Mr. Zywicki. Exactly right. I think that frames it
correctly, which is, obviously, it needs to be, as I said in my
remarks, responsive to the current technology. It needs to be
responsive to the right jurisdictional boundaries. Our laws are
really set up in a paper-based world back in the 1970s, and,
finally, I think we really need to tailor it to who consumers
are, where they are, and how they get information. Nowadays,
people do things on the phone, not with great big stacks of
paper, and so in terms of getting the right disclosures at the
right times so that consumers can understand them on these
products, I think those are the principles we should look like;
take a consumer-focused approach to how they get information.
Chairman Steil. Should it be risk focused, should it be
activity focused, or should it be how the business purports the
business model itself? What is the best way for us to be
thinking that through?
Mr. Zywicki. I think the best way to think about it is how
do we empower consumers to find the products that they want as
easily as possible. One of the things about EWA and BNPL is
they are pretty simple products usually, and consumers can
generally understand them, but I would say what we want to
think about is how do consumers take in the information, how do
they use the products, and focus on from the consumer
perspective.
Chairman Steil. Thank you very much. I think we have some
really innovative space here and appreciate your testimony. I
yield back.
I will now recognize the ranking member, the gentleman from
Massachusetts, Mr. Lynch, for 5 minutes.
Mr. Lynch. Thank you very much, Mr. Chairman. First of all,
I want to recognize a couple of my dear, dear colleagues and
friends in the audience, Congressman Lacy Clay from Missouri
and Congressman Ed Perlmutter from Colorado, two outstanding
Members of Congress when they were here, and they are missed,
and good to see that they are gainfully employed.
[Laughter.]
Mr. Lynch. Just turning to the issue of earned wage access,
so before coming to Congress, I was an iron worker for about 20
years, worked in the construction industry, mostly building
high-rise office towers, that type of thing. The way it worked
in the construction industry is we would work Monday through
Friday, and then the following Wednesday, we would get a
paycheck. So, by the time payday rolled around at the end of
the day on the following Wednesday, we had loaned the company 8
days of labor. So, we floated, basically, providing credit to
our employer, and life does not work that way. It did not work
that way back then, and it does not work that way today. Back
then, you had to ask for what they called a drag. A drag was an
advance on your money, so it is the similar model here, but it
was much less fair and transparent back in the day, so there is
definitely the need for this, right? We need innovation, as
several of our witnesses have pointed out. Mr. Zywicki and
others have said we can expand opportunity, we can expand bank
access if we do this properly. I do want to just acknowledge
what Ms. Reynolds Hand has pointed out, that if we do not do
this properly we allow this innovation to come in a way that we
actually encourage, or let me put it this way: We unfairly
require companies that are doing the right thing to compete
with bad actors if there is no regulation, you know. We just
know human nature, and we may put people in a bad situation,
especially because of the demographics.
Ms. Reynolds the recent bipartisan working group that we
had here on artificial intelligence that I co-chaired with
Chairman Hill specifically examined the impact of AI algorithms
that target certain customers based on certain characteristics,
including protected characteristics. Given the importance of
consumer data feeding AI, there is a concern that some of these
companies may use algorithms in BNPL buy now, pay later, and
earned wage access products that feed off consumer datasets
that violate their privacy and may be impermissible for other
reasons. Can you talk about do we have any transparency or any
visibility on how these firms are using those datasets, how
they were acquiring them?
Ms. Reynolds Hand. Sure. Absolutely. Over the last several
years, Consumer Reports has evaluated, we have reviewed
policies, and actually dug into the fintech apps, various
kinds--buy now, pay later, peer-to-peer (P2P) apps, digital
wallets, crypto wallets, for example--to examine how consumers
use them, what they do. To your point, all across the board,
even basic banking apps, more data is collected than is needed.
That data is then passed on and sold and used. Consumers are
upmarketed. It also allows the companies to strategically
understand what consumers are willing to pay and what they are
not willing to pay, and prices can be set using this data that
they gather from consumers. We do see multiple use. Consumers
do not have control over their data. These apps are typically
set to a default that is obscured, hard to find, and so it can
have a disparate impact on communities of color, poor
communities, and other consumers.
Mr. Lynch. Okay. Thank you. My time is going to expire, but
I would just ask you if you might be able to share with the
committee in writing ways that we might mitigate the potential
bias used against certain populations, especially the 40
percent of BNPL users who are Black or Hispanic organic, as
identified by the Federal Reserve Bank of Philadelphia. Thank
you. I yield back.
Chairman Steil. The gentleman yields back. The vice chair
of the full committee, the gentleman from Michigan, Mr.
Huizenga, is recognized.
Mr. Huizenga. Mr. Chairman, I find myself in an odd
position agreeing with Mr. Lynch on a couple of things: one,
acknowledging our colleagues, Mr. Lacy Clay, Mr. Perlmutter. I
am not sure I would have used ``outstanding''----
[Laughter.]
Mr. Huizenga [continuing]. but they are very good friends
and great colleagues to have worked with across the aisle, both
of them, and I do appreciate that. It is interesting, Mr.
Lynch's work as an iron worker. My family, the small company
that I own, is in construction as well. It is seasonal, and I
can tell you we go through that payroll process every week. We
have chosen as employers to pay every week because I do not
want to disadvantage my guys. I can tell you, I am speculating
here a little bit, but I am pretty sure that Henry, Cole,
Larry, and a couple of the other guys would be really excited
about being able to have access to their cash daily after they
put in a 10-or an 11-hour workday in a gravel pit, and,
frankly, they deserve it.
Now, the realities are, is by the time they finish up at
5:30-6 on a Friday, we got to go get the hours, figure that
out, get that into our payroll processor, and by the time that
the checks are cut--we still are old school--they can choose to
whether they want to have direct deposit or not, but we are
still sending checks in the mail to some of these guys, and
sign the check and they finally get it on Thursday. Amen.
Hallelujah. Let us actually pay for people's work in a timely
manner as we possibly can.
So, I am going to start with Ms. Kelley here, and I want to
touch on the transmitter licensing which I know you mentioned
in your testimony. Currently, there exists a patchwork of State
licensing regimes, and so it is kind of a quick two-part
question here. First, what difficulties do you--do startups
face when trying to develop or scale a new payment system, and
second, what is the cost and complexity of complying with
varying jurisdictional frameworks?
Ms. Kelley. Yes, Congressman, thank you for that question.
It is an important one. When you think about fintech startups
and what it takes for them to get in market and operate,
uniformity is so important, and the example you provide is one
where there is incredible disuniformity. You have a small
startup trying to get into business in 49 different
jurisdictions with 49 different licensing requirements. We know
that is expensive, we know it costs literally millions of
dollars, and we know it takes a long time, as much as 2 years,
and that is a death knell for a small business trying to get up
and running. Then, of course, if they do manage to get up and
running, there are 49 different compliance regimes they have to
apply with.
Mr. Huizenga. Well, that is okay. We will just have the
Huizenga Gravel Company compliance department take care of
that. Oh, wait a minute, that is me.
Ms. Kelley. Well, that is exactly right. Small businesses
have to focus on their business.
Mr. Huizenga. Yes.
Ms. Kelley. They do not have an army of compliance
professionals and others who can help us navigate that
patchwork, so it is an excellent example of a real-world
problem that startups and businesses have.
Mr. Huizenga. It is better than Mr. Steil and me carrying
your sack of potatoes on the metaphorical farm.
Ms. Kelley. Exactly.
[Laughter.]
Mr. Huizenga. All right. Mr. Zywicki, good to see you again
as well. What role do nonbank firms play in partnering with
fintechs, and how do these relationships help drive innovation
that might not otherwise occur within traditional banking
system? We are seeing this all the time, right? I mean, you
certainly did at CFPB.
Mr. Zywicki. Yes, thank you for that. It is really
remarkable. Banks do some things pretty well, but banks do not
always do innovation that well, especially smaller banks.
Mr. Huizenga. Their regulators tend not to like that.
Mr. Zywicki. Yes, their regulators often are not friends of
innovation, but especially small banks. I think one of the
things we are seeing is that a lot of fintechs are partnering
with small banks, which I think are strengthening the dual
banking system. A lot of these are State banks, smaller banks
and so, what I think we are seeing is, especially in a
regulatory environment where, for various reasons, including
regulation, we are getting more and more consolidation and
concentration in the banking system. I think the way in which
fintechs are strengthening the ability of small banks to
compete with big banks, they are often more nimble, they are
more responsive, and that sort of thing. That is really been an
engineer. Big banks innovate as well, but I think the ability
of fintechs to partner with small banks has been a huge part of
this story.
Mr. Huizenga. Okay. I have 30 seconds left, and, sorry,
with a name like Huizenga, I am not trying to be disrespectful
when I mispronounce Palaniappan, right? Close-ish? Let me move
to you on the remaining time. What elements of your current
financial institution regulatory framework may be inappropriate
for startups? I may have to take that in written form, but
maybe briefly.
Chairman Steil. Why do we not ask the gentleman to provide
that in written form, cognizant of the time?
Mr. Huizenga. I yield back. Thank you.
Chairman Steil. Thank you.
Chairman Steil. The gentleman yields back. I will now
recognize the gentlewoman from California, the ranking member
of the full committee, Ms. Waters, for 5 minutes.
Ms. Waters. Thank you very much. President Trump promised
to reduce the cost of living. Instead, unemployment and grocery
prices are rising, and consumer protections are eroding. Under
the Trump economy, people are being forced to use products like
earned wage access to get early access to their paychecks, and
buy now, pay later loans to buy groceries. Trump called this
affordability crisis a hoax, but he knows it is real and now
wants to cap credit card interest rates at 10 percent. Well,
President Trump, I am pleased to know that you are listening.
We do not agree on much of anything, but we do on this, so let
us do it. Let us cap interest rates, but, Mr. President, you
are going to need to convince your Republican colleagues
because they will not consider this or any other bill that
would help keep money in consumers' pockets.
So, not only am I interested in what the President has
proposed, this interest rate of 10 percent on credit cards. Mr.
Steil, do you believe this cap requires authorization by
Congress? Yes? I did not hear you.
Chairman Steil. Would the gentlewoman----
Ms. Waters. I yield.
Chairman Steil. The gentlewoman would like to yield?
Ms. Waters. Do you believe the cap requires authorization
by Congress to get the 10-percent cap that the President is
advocating?
Chairman Steil. I would be more than happy to have a
broader dialog as to exactly how we navigate it anytime,
Ranking Member.
Ms. Waters. Well, I want to know whether or not the
committee have plans to move forward with this policy. Maybe
some of our witnesses here today know a little bit more about
it. Ms. Reynolds, are you supportive of 10-percent credit card
rate cap?
Ms. Reynolds Hand. We are supportive of anything that
lowers the cost of goods and services to consumers. As you
mentioned, loads of things, including the cost of financial
services, are high for consumers right now. I think an
important consideration is how that happens, and if that
happens through a transparent process where we are able to come
to the table and land on a workable solution, that is great.
I think one thing I would like to note is about how credit
card rates are set. They are based on risk price, right,
lending happens that way, and so we would be concerned that
this 10-percent cap, if not done correctly, could reduce
accessibility of credit cards for some of the more vulnerable
consumers and so, we would support the basic principle and are
looking forward to seeing more details and working in a
bipartisan way.
Ms. Waters. Well, I am sorry I said ``Ms. Reynolds.'' It is
Ms. Reynolds Hand. Fintech products like buy now, pay later and
earned wage access, do you believe that they can help families
struggling to make ends meet, especially during this crisis
that we are confronted with?
Ms. Reynolds Hand. Yes, they can. We have no objection to
those products. What we have seen is with the introduction of
innovation, more consumers have access to liquidity. That is an
important foundation of American commercial life, and we want
healthy credit that is available to consumers, but there should
be some basic standards that are introduced and guardrails that
are introduced with these products. Specifically, we want to
ensure that there is an affordability standard. We got into the
last financial crisis, the mortgage crisis, because there was
not a real test of consumers' ability to repay. That deserves
consideration with these kinds of products, especially when you
have a significant business model. You have employer-sponsored
EWA. You also have direct-to-consumer EWA, which is sponsored
differently and, in some instances, can be riskier to
consumers.
We also want to ensure that all products that look like
credit and act like credit are treated in the same way. If a
consumer incurs a debt and that debt needs to be repaid later
in time for a specific fee or interest is attached, I do not
know what else you would call that other than credit, and that
is what is defined under the Truth in Lending Act. So, we want
that consistency.
Ms. Waters. Thank you very much. I yield back.
Chairman Steil. The gentlewoman yields back. The gentleman
from Ohio, Mr. Davidson, who is also the chair of the National
Security, Illicit Finance, and International Financial
Institutions Subcommittee, is recognized for 5 minutes.
Mr. Davidson. Thank you, Chairman. Thank you to all of our
witnesses for joining us today and for your testimony.
One of the great strengths of America's financial system is
the capacity for innovation. Fintech companies, in particular,
have created tools that help consumers stretch the paycheck,
avoid overdraft fees, build savings, improve payments, and
access financial services in a way that simply did not exist a
decade ago. Earned wage access is one of the things that we are
highlighting today, and I think all of our witnesses, or really
4 out of the 5 witnesses, have done a good job describing how
this works, why consumers want it, and I think Chairman Steil,
his question, clarified and the answer clarified why it is not
debt, so. I guess that debt is in the eye of the beholder
because Ms. Reynolds Hand thinks that it is debt, but it seems
very clear that you are not obligated to repay something in the
future. You are just paying a fee for a service. I mean, who is
served by treating it as if it is debt? How is this protecting
consumers? Why would they want to categorize it as debt? Maybe,
Ms. Kelley, would you give us an answer about what you think?
Ms. Kelley. Yes. We agree that this is not debt, that it is
access to wages that are already earned and we think it is a
really important choice or option, and that is the hallmark of
the fintech industry right now: providing choice and option to
consumers who are best positioned to decide how to utilize
those products. I know we have earned wage companies here who
can speak in detail about what they do, but as an overarching
matter, we agree this is not that.
Chairman Steil. Mr. Lefton, your take?
Mr. Lefton. Sure. I think it is absolutely clear that
earned wage access is not credit because it does not have debt,
and I think as I alluded to earlier, a debt requires an
obligation to repay. With earned wage access, as we have
stated, it is a nonrecourse product. So if something happens,
whether it is a technological glitch or the user somehow
changes their functions and the company does not recoup their
money, we do not go after the consumer. There is no risk to the
consumer whatsoever. At most, maybe they will be paused until
we figure out how that happened, but there is no risk to the
consumer. There is no debt collection and they do not go to the
credit bureaus, so there is no obligation.
Mr. Davidson. Thank you, and I think it is also essentially
the same whether it is a direct-to-consumer or something that
the employer offers as a service to the employees. I would say,
look, the idea that payroll is deferred into the future and
people would like to get paid is not new. I mean, this is as
old as the Bible. You see stories about people who are paid one
denarii for a day's wages. There are people that show up late
in the day and are giving them one denarii and they are, ``oh,
not fair,'' right? So, we have had a debate about payroll as
old as we have written documents, I think so, but it is nice
that we have this service, and I appreciate the clarification
on it.
One of the other things that we have done for a long time
is we have State-regulated banks, and bank fintech partnerships
are incredibly important to being able to provide access to
consumers. When you think about community banks, a lot of
people, that is where they find accessibility, and a lot of the
biggest banks do not decide to launch massive products. They do
not want to test the market. They want to be fast followers at
best. Maybe the cutting edge is somebody smaller, more nimble
and willing to test a product that they do not have to
necessarily spend as much capital just testing it or getting
into the market. So, we have a regulatory framework that
creates preemption around the country where banks are
regulated. This is the Depository Institutions Deregulation
Monetary Control Act, DIDMCA, if I am pronouncing that alphabet
soup correctly. Essentially, if a bank is based in Ohio, they
are regulated by the regulators in Ohio, but because of
preemption, they can service customers wherever customers want
to reach out to them and access. How is that being
reinterpreted and reimagined and why? Ms. Kelley, you got an
answer to that?
Ms. Kelley. Yes, so, and thank you for that question. It is
an important one. As we spoke earlier, uniformity is really
critical: predictability, certainty, uniformity for fintechs
and the ability of a bank to partner with a fintech to make a
loan, for example, there needs to be certainty about which
State's laws apply, and that has been thrown into question
lately. There was a recent decision in the Tenth Circuit that
suggested States could override the law that would otherwise
apply. Again, anything that creates disuniformity like that
does makes it more difficult for innovation to thrive.
Mr. Davidson. Yes, thank you. I will be introducing
legislation in the near future to rebut that ruling and make
sure that we know the law is clear as it has been applied for a
long time. I hope all my colleagues across the aisle will join
in it, and I yield back.
Chairman Steil. The gentleman yields back. The gentleman
from California, the ranking member on the Subcommittee on
Capital Markets, Mr. Sherman, is recognized for 5 minutes.
Mr. Sherman. Mr. Chairman, off the topic of this hearing,
this is the first meeting of a subcommittee of Financial
Services since President Trump has begun this unprecedented use
of the criminal justice system to contort it, to militarize it,
and to attack the Federal Reserve, to try to take away its
independence and, thereby, imperil our economy. If you are
gullible enough to think that Donald Trump did not order this
to happen, you are probably gullible enough to think that he
has been faithful to all three of his wives.
Now, as to this hearing, the basic problem is rent is too
high, groceries are too high, wages are too low, and an awful
lot of Americans do not have a thousand bucks in the bank, and
so they have to turn to all these expensive and complicated
systems to get their hands on a few hundred dollars. We are
told that these are not payday loans. Many payday loan
companies call themselves payday advance. They are functionally
equivalent to a payday loan, but the companies involved do not
want to live by the same laws as the payday lending folks. We
are told instead that you are selling an asset you already own,
so, Mr. Lefton, let us say my pay period begins on February 1.
I am 15 minutes into the pay period. I have been paid for every
bit of work I have done for my company, except for the last 15
minutes. How much can I borrow from your company?
Mr. Lefton. So, at Stream, it is----
Mr. Sherman. Can I not borrow $500 from your company 15
minutes into the business pay period?
Mr. Lefton. You can borrow up to 50 percent of your gross
earned wages. We are integrating----
Mr. Sherman. Of what I have already earned in 15 minutes,
or what I am going to earn during the pay period?
Mr. Lefton. No, what you have earned up to that moment in
time.
Mr. Sherman. Only what I have earned up to that moment in
time.
Mr. Lefton. That moment in time.
Mr. Sherman. So, you have a company that is there to help
me, but you can only help me significantly on February 14. You
cannot help me on February 1.
Mr. Lefton. Well, we can help you access any wages you have
already earned in that moment in time. We are integrated with
your employer----
Mr. Sherman. Okay.
Mr. Lefton [continuing]. so we know exact date, time, and
attendance of----
Mr. Sherman. Okay. I will ask the gentleman sitting next to
you. I got paid on January 31. It is now February 1. I need 500
bucks. Can I get 500 bucks from your company?
Mr. Palaniappan. No. The only amount that you can take is
how much you have earned up until that point in time. We do not
let you go beyond what you have already earned.
Mr. Sherman. So, neither one of you will lend me even a
hundred bucks on February 1 if I have been paid on January 31.
Mr. Palaniappan. We are trying to make payroll be more
efficient. People should not have to wait after they have
worked to get their pay. That is what we are focused on.
Mr. Sherman. Okay. So----
Mr. Palaniappan. We are now trying to help them out if they
need----
[Cross-talking.]
Mr. Sherman. Are there firms in your industry, though, that
will advance me 500 bucks as long as I am going to make 500
during this pay period or during the----
Mr. Palaniappan. Not in the earned wage access product.
Mr. Sherman. Okay.
Mr. Palaniappan. There are lending products that will do
that.
Mr. Sherman. That is an interesting model. Well, I will ask
Ms. Hand. It seems like these companies are direct competition
for payday lending. They are doing the same thing. Should they
be exempt from even what many would call the insufficient
regulations that we have on payday lenders?
Ms. Reynolds Hand. We think there should be the same
regulation in the marketplace for products that are
functionally acting in the same way. If a consumer is able to
receive funds, defer the payment, and if there are fees or fees
that act like interest as they accrue over time, these should
be treated the same way.
Mr. Sherman. I will point out that people have calculated
that the acceleration fee is 300 or 400 percent APR, which is
why I have said APR is just a crazy way to evaluate the
fairness of an advance or a loan that is just for a few days. I
go to my local ATM machine. I could walk four blocks to my
banks. I get my money, well 10 minutes sooner, and I pay 2
bucks extra. You figure out the APR, $2 to get my money 20
minutes sooner. The APR is in the tens of thousands, but we see
that 90 percent of the folks that use this system are paying
the acceleration fee. Should we regard, Ms. Hand, this as a
free service, or is it a service that people are paying the
acceleration fee on?
Ms. Reynolds Hand. I mean, what we see in terms of consumer
usage is that consumers do not typically use these as a one-
and-done product. I am happy to follow up in writing. They tend
to stack these loans----
Mr. Sherman. Ah.
Ms. Reynolds Hand [continuing]. and then functionally, that
is where you see the equivalent of 300 percent or other high
APR.
Mr. Sherman. Gotcha. I yield back.
Chairman Steil. The gentleman yields back. The gentleman
from Montana, Mr. Downing, is recognized.
Mr. Downing. Well, thank you, Mr. Chair, and thank you to
the witnesses for spending some time with us today.
As a former securities regulator, I have dealt with a lot
of issues in this space with digital assets. I had to deal with
ambiguous regulations that, in some cases, have forced
companies to look for offshore domiciles in innovating and I
think it is incredibly important that we continue to have
innovation here in the United States of America and do not have
that ambiguity that we have in the past that have made people
decide to run their businesses elsewhere without a reasonable
framework. Another thing that was really difficult for me as a
regulator is the ambiguity we got from the Securities and
Exchange Commission (SEC) at the time on how to treat these and
a lot of the enforcement by action rather than having a
framework, which is why I think it is really important, that we
need clarity for digital assets and for artificial
intelligence.
So, I am going to start with Professor Zywicki. I represent
one of the most rural districts in the United States. In
Montana's 2nd Congressional District, we have multiple counties
with less than 500 people in them. It is very, very rural. So,
how does financial technology increase access to banking
services in areas that have sparse financial institutions, like
in rural areas of Montana?
Mr. Zywicki. Thank you for that question because I think
the focus on financial inclusion for rural communities has been
really understudied, and I think it is an area that is really
important. It is an area that has become more important, as I
mentioned in my opening comments, because of regulations like
Dodd-Frank and the like, which have accelerated the
concentration of the industry, and the regulatory costs have
led to the disappearance of a lot of rural banks, small banks,
community banks, and the like. Obviously one solution would be
to reform the regulatory system, but I think this is the
vehicle for that if you are talking about your local bank
closes and now you have to drive 90 minutes to get to a bank in
the next town. Fintech as a means for payments, as a means for
obtaining short-term credit, for all these sorts of things, it
is really the obvious solution for these rural communities that
have lost access to financial services.
Mr. Downing. Thank you very much for your answer. I am
going to move on in the interest of time here. I was an
advocate for regulatory sandboxes in Montana when I was a
regulator. We effectively pushed policy on insurance technology
(insurtech), and fintech was another part of this conversation,
giving an opportunity to try out things that may not exactly
fit within a current regulatory framework. So, I am going to
start with Mr. Palaniappan. What role can regulatory sandboxes
play in allowing fintechs to test and scale innovative products
while maintaining appropriate consumer protections?
Mr. Palaniappan. I think when a company is at an early
stage in trying to come up with a product that does not exist
before, the existing frameworks and laws usually have not
contemplated what they are trying to do. So, I think you do
want to provide the freedom for companies to try out new things
with the right set of guardrails. I think there is also another
set of startups where I would put earned wage access where the
products are actually at reasonable scale. There is lots of
evidence that it is better off for consumers, and when it gets
to that stage, then you do want to have clarity so that
consumers know that the product will continue to be available
for them and also keeping bad actors out from that space.
Mr. Downing. Thank you. Mr. Lefton, any comments on that?
Mr. Lefton. Yes, I think that is a great question. I think
sandboxes are critical for providers to work with regulators
and figure out how best to serve the consumer, and I think a
great example of something like that is Stream was founded 8
years ago in the U.K. At the time, my founders, basically, came
up with the idea, they knocked on the door of the Financial
Conduct Authority, the FCA, and said we want to do this, how
can we work with you to do this?
Mr. Downing. Right.
Mr. Lefton. They worked hand in hand with the FCA in order
to do this and we brought that mentality over here and have
tried whenever we were given the opportunity, whether it is
with State regulators or the CFPB or being here today, to work
to see how best we can come up with appropriate regulation for
the product.
Mr. Downing. Thank you. In the interest of time, Ms.
Kelley, I am going to move on to you. I often hear from banks
and credit unions in my district how costly it is to comply
with so many regulations. So, how can we ensure that compliance
costs for fintech startups remain proportionate so that
innovation is not stifled and pricing does not prevent these
products from reaching the consumers they are intended to
serve?
Ms. Kelley. Yes, thank you for that question. So, I think
as we look to ensure that regulatory burdens do not stifle
innovation, there are a few things we need to stay focused on.
First, it is critical that we regulate activity and outcomes
rather than technology. The core principle is same regulation.
Second, uniformity and clarity are key. It is difficult to run
a business and comply. We need to know exactly what it is we
are complying with, and reducing the number of competing
regulations is critical. We think sandboxes done correctly play
a critical role----
Chairman Steil. The gentlewoman can conclude in written
testimony. We appreciate her testimony. Thank you.
Mr. Downing. Thank you. I yield.
Chairman Steil. The gentleman yields back. The gentleman
from Illinois, Mr. Foster, the ranking member on the Financial
Institutions Subcommittee, is recognized for 5 minutes.
Mr. Foster. Thank you, Mr. Chair, and to our witnesses. Mr.
Palaniappan, I was struck by the data that you mentioned about
how earned wage access produces a better motivated and more
productive and reliable employee. The question I have is, why
did not the free market competition among payroll providers
simply make this a standard feature of all payroll processing
equipment? Was it just the overhead that Rep. Huizenga
mentioned of filling out your weekly timesheet and the whole
rhythm there? Is someone collecting the interest on this
effective loan? What is it that prevented this from just
happening naturally? I understand you are trying to disrupt it,
a full-stack payroll provider yourself.
[Laughter.]
Mr. Palaniappan. Yes.
Mr. Foster. I presume has this as a feature.
Mr. Palaniappan. So, EarnIn Payroll does do what you
described as the payroll system, but, typically, a payroll
company does get interest on the money. The money is pulled
from the employer's account. It goes into a master trust
account. From there, the money goes into the employee's
account, sometimes sits in the master trust account for some
time, and then we also have to make payments for tax. Tax is
actually not due immediately. Tax is sometimes due quarterly.
Sometimes, depending on jurisdiction, it holds for more time.
So, there is some interest that is being made.
Mr. Foster. Is that the big----
[Cross-talking.]
Mr. Foster. I just wonder----
Mr. Palaniappan. I actually think----
Mr. Foster [continuing]. what is your impression of why
this did not happen naturally?
Mr. Palaniappan. I think it is different. I think the way
we see payroll systems is we think there should be two
consumers for a payroll system. There should be the employer
and the employee, and employee first is how we actually have
started the company. Most payroll systems think of the employer
as their only customer. The employer is not the one who says I
want the wages to be disbursed immediately. It is the employee
who wants that, and so I think when you are focusing----
Mr. Foster. It should be a competitive advantage to an
employer if this is something they are offering.
Mr. Palaniappan. Exactly.
Mr. Foster. Right, and so any time I see, like, a failure
of the free market to generate the right answer, I try and
understand what drove that.
Mr. Palaniappan. EarnIn Payroll does let employees access
their pay when they need it, so they are----
Mr. Foster. Oh, yes. No, I understand, and I understand why
you are probably gaining market share. Why did someone not
invent this 2 decades ago and have it happened automatically, I
guess. Anyway, if you have any thoughts on this. I do not want
to burn all my time here, but I think it is an interesting
question when we see it.
Now, the big thing that I spend a lot of my time worrying
about is agentic AI because that is going to be disrupting
everything. When Mr. Zywicki, you, the dealer, the car dealer
when you can go into a car dealer and get a car and then so,
what happens now is that you go and you strike a price for the
car, and then the car dealer will try to steer you into some
crappy, overpriced loan, which is a big part of their business
model. In the agentic future that I think many of us dream
about is that you are going to have the Consumer Reports app
give you advice and say, okay, yep, all right. Here, you struck
a deal for this car, and then your Consumer Reports agent will
go out on the internet and look and see what is available for
loans, get the low-price loans and say, thank you very much,
Mr. Dealer, there is a better.
Trying to preserve that kind of competition is, I think,
what is going to be the challenge of the next decade in
financial services. The key thing there, it seems to me, is how
do you get unconflicted financial advice to the consumer? Who
is it? This is the problem because when startups come up to me
and come into my office and say, we have this great new
personal advisor product. AI advisor, and then I say, okay, how
are you going to monetize that? It always comes to some
variation of, we are going to be just like Google. We will get
everyone to trust us, and then we will abuse that trust by
steering people into crappy, overpriced products. So, what are
the best thoughts out there on getting unconflicted advice to
consumers through their AI apps? Mr. Zywicki, you look like you
have been thinking about this.
Mr. Zywicki. I have been thinking about it, but I am not
certain I have a great solution, except, I mean, obviously
there has always been a market. I am sitting next to somebody
for Consumer Reports, which has been around for almost a
century, for unbiased information, for subscription-based
information and the like, and I agree with you that agentic AI
is really important. Another thing I would say is dealing with
the emerging issues of consumer data privacy----
Mr. Foster. Mm-hmm.
Mr. Zywicki [continuing]. and the idea of AI, and the idea
of bad guys, fraudsters having AI and being able to, basically,
attack the way in which we have done consumer data security for
years with our passwords and all that sort of stuff.
Mr. Foster. Oh, sure, yes. Yes, when I go through the list
of what government can actually do to help, number one on the
list is get government support for mobile ID, digital driver's
license as a means of reliably authenticating who you are,
proving you are who you say you are online. Second to that is
have the National Institute of Standards and Technology (NIST)
or someone like that come up with the standards of AI
communication.
Mr. Zywicki. Yes.
Mr. Foster. This is something that I will be following up,
I think, with you because that is something that would move the
ball forward and get U.S. standards to really be promulgated
around the world.
Mr. Zywicki. I would enjoy that dialog. That would be
useful.
Chairman Steil. The gentleman yields back. The gentleman
from Tennessee, Mr. Rose, is recognized for 5 minutes.
Mr. Rose. Thank you Chairman Steil, and thank you, Ranking
Member Lynch, for holding this important hearing, and thank you
to our witnesses for taking time to be with us. Mr. Lefton, how
do earned wage access products enable consumers to meet their
financial obligations without incurring overdraft and late
fees?
Mr. Lefton. Sure. Thank you. I think that is a great
question. I think it was alluded to before that over a hundred
million Americans live paycheck to paycheck, and the same
number have less than $400 in savings. EWA enables users to
access their already-earned wages at either no cost or for a
low nominal fee, and I think that is important because it gives
them choice. There is competition now, and that is at a much
lower price than the traditional predatory products out there,
and every time they use a service like EWA over a traditional,
high-cost product, they are putting more money in their pocket.
Mr. Rose. So, it seems to me that one of the risks here is,
of course, once you do this once, if it continues, then you
have kind of accessed that resource and then you are not able
to go back to it. Is the evidence that is what happens in fact,
or is there evidence that consumers tap it, then pay it back,
then tap it? How does that end up working in practice?
Mr. Lefton. No, I think that is a great question. I think
you are talking about cycle of debt, which EWA, to be clear,
has nothing to do with debt. It is a frequency of pay issue,
right? It is a timing issue, and charging interest, requiring
minimum payments, rollovers, those are all significant features
in a cycle of debt, none of which are present with EWA. Our
data shows that EWA users actually spend less and save more
when they are in control of their own finances.
Mr. Rose. Once you collect your wages early, if you will,
do you kind of stay in that cycle and you do that paycheck to
paycheck? Is that the evidence, or does it kind of go and come?
Mr. Lefton. So, I think it fluctuates. I mean, it really
depends on every user's situation, right? It depends on their
income--how much they make, where they live, all those kinds of
outside factors that we do not have insight into, but I think
it spans the entire spectrum.
Mr. Rose. Thank you.
Mr. Lefton. Sure.
Mr. Rose. Mr. Palaniappan, how does earned wage access
complement existing financial products to benefit consumers?
Mr. Palaniappan. So, earned wage access is an additional
tool for customers, and what it does, it helps them control the
timing of when they get paid. So, instead of being stuck to
this rigid biweekly or monthly pay cycle, they can choose when
to get their pay, and they can use that along with other
financial products. We have a number of financial products as
well within our app. We have automated savings, credit
monitoring, and so they all work well together. Sort of coming
to the question on the repeated use, I think different people
use it in different ways. It is used very often to pay bills
and to pay rent. The most common pay cycle in the U.S. is you
are paid every other week. Every bill is monthly. So, for every
bill, 6 times a year, the bill is due before payday. So, what
you can do with earned wage access is access the money when
your bills are due instead of having delayed fees added onto
your bill.
We also see a lot of people who are using this as a way to
increase their incomes. So, I did mention the government
employee uses us with his side custom candle business, and he
is making more money on his side business because of that. I
spoke with another customer who works at retail. When you work
at retail, there are different types of roles. With one role
you are tied to a particular store location. With another role
you are tied to a department, like a cosmetics department, and
you cover about three different store locations. That role pays
more, but when she was offered the higher-paying role, she did
not take it because she could not afford to front the gas money
and then wait to get reimbursed, and so now she uses EarnIn.
So, when she got the offer again, she took it the next time
because she knew that with EarnIn, she could actually afford to
front the gas money. EarnIn has helped her stay employed at a
higher-paying job, so it actually makes sense that she uses it
because that is what is keeping her in that job. So, I think in
many cases, you are seeing incomes go up, and incomes go up
because of reasons like this.
Mr. Rose. I think--Mr. Palaniappan, you may weigh in on
this, and, Mr. Lefton, I think this is the point you were
trying to make--there is a very big difference between earned
wage access and payday lending as we know it. Mr. Lefton, weigh
in on that. Really press down on the difference.
Mr. Lefton. Sure. Absolutely. I think the key differences
with any loan product and earned wage access is there are two
components to a loan. There is debt and there is interest, and
with EWA, there is neither. I think that is a fundamental
difference, that when we talk about this, people need to
understand and realize that with EWA there is no debt, with EWA
there is no interest, and those two things together are what
form a loan.
Mr. Rose. Thank you. My time has expired. I yield back, Mr.
Chairman.
Mr. Rose. The gentleman yields back. The gentlewoman from
Massachusetts, Ms. Pressley is now recognized for 5.
Ms. Pressley. Thank you, Mr. Chair. I am certainly glad we
are having today's hearing to discuss buy now, pay later.
While, admittedly, I am old enough to remember the layaway line
decades ago when you did not get the product until you paid for
it. We are certainly living in a different era. Klarna, Affirm,
Afterpay, and PayPal are the four biggest buy now, pay later
companies, and they are everywhere. With a simple press of a
button on your phone, you can access product immediately and
pay for it over time. To me, that does sound like a loan. A
person is borrowing lump sum funds that they will have to pay
back over time in the form of an installment plan, and if they
miss payments, it can go to debt collection, show up on their
credit report, and lower their credit score for years. Ms.
Hand, do you agree with my assessment that buy now, pay later
is a loan?
Ms. Reynolds Hand. Yes, absolutely. You have, basically,
two models in the marketplace. You have to pay in four or
sometimes six, right? You pay back those four or six payments.
There is no fee. Typically, there is no interest. That might
not be a loan under the definition, and then you have the
installment product, right? These are longer term. Let us just
say you are buying an appliance for $2,500. That would come
with actual interest. Let us say the interest is 24 percent or
36 percent over a 24-month period. A consumer for that product
is going to be paying not $2,500 for the product. The effect of
that APR over 24 months is roughly $1,070.
Ms. Pressley. All right then. Ms. Hand, before the Trump
Administration rescinded guidance, the Consumer Financial
Protection Bureau, and I want to underscore Consumer Protection
Financial Bureau, took important steps to ensure proper
treatment of these loans, like the ability to dispute charges
and to obtain refunds. What are some of the harms that
borrowers face now that those rights and protections are gone
and we have people working actively to gut and to degrade the
work of the CFPB?
Ms. Reynolds Hand. Yes, it is quite alarming to see a
marketplace evolving, frankly, in a way it should have been for
the last 20 years to provide more access to different products
to consumers, at the same time that the consumer protection
regulator has shut down enforcement, examinations of financial
institutions are not happening. This is alarming, and this is
not the way a healthy marketplace is supposed to operate. What
this means is the only ability is perhaps States who are
actively looking for patterns and trying to regulate these
products State by State. Regulation should not be our default.
We need strong Federal floors to protect consumers.
Ms. Pressley. Just with a quick ``yes'' or ``no'' here as
my time is leaving us, do you think buy now, pay later
companies are being transparent enough to ensure consumers know
what they are signing up for?
Ms. Reynolds Hand. They could do better.
Ms. Pressley. Okay. Thank you. Even when buy now, pay later
lenders are operating with transparency and following Truth-in-
Lending laws, we must acknowledge that these fintech
innovations do not get at the root problems. It is wage
stagnation that leaves the young parents unable to keep up with
the rising cost of living for their family. It is corporate
greed that prioritizes profits at the expense of workers that
are pulling double shifts. It is Donald Trump's fiscally
chaotic and irresponsible policies that have reduced hiring and
increased unemployment and ignored the affordability crisis
that is plaguing our country. While fintech may help stand in
the gap, people do not want to just get by. They want to thrive
and prosper and achieve their dreams. So, Congress must get
serious and fight for the people, not the corporations. I yield
back.
Ms. Pressley. The gentlewoman yields back. The gentleman
from South Carolina, Mr. Timmons, is recognized.
Mr. Timmons. Thank you, Mr. Chairman. I want to thank the
witnesses for being here today.
Fintechs are transforming the way Americans interact with
financial services. Millions of people around the world have
already seen their lives meaningfully improved by digital
assets and the services provided by fintech companies. From
expanded access to capital to faster and more secure money
transfers across often authoritarian borders, these
technologies are already reshaping the global financial
landscape. I have met with countless innovators who are
building products that meet real consumer demand and help
families better manage their financial lives, particularly
those who have been underserved by the traditional banking
system. This progress, however, depends on getting the policy
environment right. Outdated rules and inconsistent regulatory
interpretations can slow the adoption of beneficial
technologies, limit competition, and drive innovation offshore.
True leadership in financial innovation means providing clear,
predictable guardrails that promote responsible innovation here
in the United States rather than pushing it overseas.
Mr. Lefton, what regulatory barriers currently prevent new
fintech companies from going to market in ways that satisfy
clear consumer demand?
Mr. Lefton. Sure. Thank you for the question. I think some
of the regulatory barriers are the lack of clarity and
ambiguity. We have seen at the State level, while numerous
States have passed pro-EWA legislation, it can be difficult to
comply with a patchwork of regulation, which I think,
ultimately, flows down to the consumer, right? Clear
regulation, unambiguous regulation, allows companies, while
also protecting consumers, to thrive with innovation. I think
one of the greatest examples is while we do provide EWA, we
have also created a savings product for consumers that is free
of charge and many of our consumers, this is their first
savings account. We are paying 5 percent interest into their
savings account, one that they have never had before, and all
in the light of that, we were able to innovate, and I think
innovation is deeply connected with clear regulation.
Mr. Timmons. Thank you for that. I will talk about the CFPB
briefly. What steps should the Bureau take to provide clear,
more predictable guidance for fintech firms, particularly
smaller or early stage companies, so that compliance
expectations are known before products are launched rather than
enforced after the fact? What do you think about the CFPB and
its role in this?
Mr. Lefton. Sure. I think the CFPB, and I will only talk
about earned wage access, but I think December 23, just a few
weeks ago, they released their advisory opinion around earned
wage access, and it really resolved the regulatory uncertainty,
right? It made it very clear, and it confirmed what Stream and
the entire industry has been saying for years that EWA is not
credit, and that the nominal fee is not a finance charge. I
think that is critical to the providers in innovating and
competing, which, ultimately, leads to greater products and
lower prices for the consumer.
Mr. Timmons. It is almost like the last 4 years we were out
of balance, and we got back in balance, and things are moving
in the right direction. Weird. Professor Zywicki, in 2024, the
CFPB took several actions related to buy now, pay later
products, including applying aspects of the payday lending rule
and certain Regulation Z obligations. In your view, how would
these measures have hindered the buy now, pay later market in
the United States?
Mr. Zywicki. Yes, I think that is a good example of trying
to jam new technologies into an old bucket, into an old hole. I
mean, Ms. Hand herself was just sort of talking about sort of
how these products are not exactly like old-fashioned products
like credit cards and that sort of thing. This is a totally
different product. If you pay on time, you do not have interest
accruing, but they are talking about like sort of applying a
regulatory framework that now only fits in perfectly as it has
grown up over time to a brand new technology. I think what they
really need to do is start over and think about what exactly
are the challenges of this product for consumers and create its
own framework rather than that blunderbuss of regulation that
would have, I think, killed the product.
Mr. Timmons. Thank you, Professor. As you have outlined,
there is real risk that misapplying legacy regulations to
innovative products could reduce access and push consumers
toward less transparent or less suitable alternatives, and that
outcome would undermine, rather than advance, consumer
protection. I think that we are moving in the right direction
with the CFPB, and we have to keep up the good work. Thank you,
and I will yield back.
Chairman Steil. The gentleman yields back. The gentleman
from New York, Mr. Torres, is recognized for 5 minutes.
Mr. Torres. Thank you, Mr. Chair. I am a Bronx boy, so I
have no farming analogies. It has been a while since the Bronx
was farmland.
[Laughter.]
Mr. Torres. Earned wage access is based on a simple
proposition: if you are a worker, you should have the right to
access the money you earn the moment you earn it and the moment
you need it. The notion that you must wait 2 weeks or even a
month before accessing your own earnings should be seen as a
scandal. It should be seen as an anachronism in a world as
technologically advanced as our own. I have constituents who
have fallen behind on their bills despite working full time,
who have fallen behind not because of a lack of earnings, but
because of a lack of access to their earnings. A lack of access
to one's earnings puts the most cash-strapped Americans at risk
of falling victims to the abuses of payday lending and
overdrafts. So, in Congress, we have a choice. Either we give
working people safe and immediate access to their own earnings,
or we set them up for financial traps like payday lending. To
be clear, like any financial product, EWA is neither inherently
safe nor inherently dangerous. It is only as good as its
design. We in Congress must ensure that EWA is designed to be a
solution to a problem rather than a problem of its own.
Congress should adopt a regulatory framework that designs EWA
to be a free and affordable alternative to payday loans or
overdrafts.
My first question to the CEO of EarnIn, do you believe, as
I do, that EWA providers should be required by law to offer a
free option to consumers?
Mr. Palaniappan. Yes.
Mr. Torres. Now, the EWA industry maintains that EWA is
qualitatively different from credit and, therefore, should be
regulated differently. If we accept that premise as true, it
then logically follows that there should be no collections,
correct?
Mr. Palaniappan. That is correct.
Mr. Torres. There should be no charging of interest,
correct?
Mr. Palaniappan. That is correct.
Mr. Torres. There should be no late fees, correct?
Mr. Palaniappan. That is correct.
Mr. Torres. There should be no wage garnishment, correct?
Mr. Palaniappan. That is correct.
Mr. Torres. There should be no adverse credit reporting,
correct?
Mr. Palaniappan. That is correct.
Mr. Torres. Right. No collections, no interest, no late
fees, no wage garnishment, no adverse credit reporting. Simply
put, EWA should function as a free or affordable alternative to
payday loans and overdraft fees, correct?
Mr. Palaniappan. That is correct.
Mr. Torres. Now, there is a debate surrounding the
appropriateness of applying APR to earned wage access. APR is
deeply informative when it comes to long-term products, but
when it comes to something as extremely short term as EWA, does
APR inform or does it misinform? I want to make a point by way
of illustration. Suppose I was to give you a 1-day hundred-
dollar loan with a $1 fee. The average person would consider
that $1 fee not to be excessive or exploitive. It is $1. What
if I were to tell you that $1 fee translates into an APR of 365
percent, right? Three hundred and sixty-five percent sounds
massive, and so, the trouble with applying APR to the most
short-term product is that annualization can make even the
smallest fees seem massive on paper. A one-dollar fee can be
made to seem massive when presented as an annualized
percentage. Is that a fair point?
Mr. Palaniappan. That is correct.
Mr. Torres. So, the question for Congress to consider is
not whether there should be disclosure. Of course there should
be disclosure of all fees, of all costs. What is needed is the
right kind of disclosure: disclosure that informs rather than
misinforms, that illuminates the truth rather than distorts it.
So, consumer protection, proper disclosure, and innovation
should be our policy objectives. I do not know if anyone has
any thoughts.
Ms. Reynolds Hand. I do.
Mr. Torres. Yes.
Ms. Reynolds Hand. I would agree with everything that you
said. I think an additional standard that applies that is
missing in this space, particularly fintech, is dynamic
disclosure: disclosure at the right time. We have technologies
that can deliver funds to consumers instantly. Those
disclosures should be delivered instantly, plainly, simply in
an accessible way. The other principle that applies is
protective design or consumer-friendly design. So, one of the
things that we have seen in this space, the products that we
have looked at, is oftentimes those zero-cost options,
particularly in the direct-to-consumer space, are hidden. The
defaults are options where the consumers will pay a fee, even
where there is a zero-cost option available. So, the technology
should be designed in a way, to your point, where it functions
so that there is no cost.
Mr. Torres. What good is a free option if you are unaware
of it?
Ms. Reynolds Hand. Sorry?
Mr. Torres. What good is a free option if you are unaware
of it?
Ms. Reynolds Hand. Exactly.
Mr. Torres. Yes, so, and I feel like those are imminently
solvable problems that I am proud to co-lead the legislation
with Congressman Steil. He is more rural than I am, so I am
happy to elicit your feedback.
Ms. Reynolds Hand. Thank you.
Mr. Torres. Yep.
Mr. Zywicki. I will just add it warms my heart to hear you
talking about reexamining APR as a way of disclosing products
to consumers exactly as you said. We talked about this in----
Mr. Torres. I am not sure if I said that, but----
Mr. Zywicki. Right, but----
Mr. Torres. Only in the EWA context.
Mr. Zywicki. Right, but to compare apples to apples, right,
consumers compared to, say, an overdraft or the late fee on a
bill, they look at dollars a lot of times rather than APR.
Chairman Steil. The gentleman yields back. The gentleman
from North Carolina, Mr. Moore, is recognized for 5 minutes.
Mr. Moore. Thank you, Mr. Chairman. Financial technology is
transforming how Americans earn, spend, and save their money.
From peer-to-peer payment apps and digital wallets to earned
wage access and installation products, fintech innovations are
responding to real consumer needs for speed and affordability.
These products exist because they fill gaps in the traditional
financial system, especially for consumers who have
historically faced limited options or high costs. With my
questions, I will start with Mr. Zywicki. Are there any
particular populations--hourly workers, gig workers, rural
communities--who benefit most from fintech services, and how
are these tools especially helpful to them?
Mr. Zywicki. Yes. The evidence on this is abundant at this
point that traditionally underserved communities are the ones
who benefit the most from fintech and fintech innovations,
whether it is rural, whether it is young people. BNPL, for
example, is used heavily by Gen Z and Millennials. Earned wage
access obviously is very popular and used a lot by hourly
workers who often live paycheck to paycheck. Upper-income
people are using these more, especially BNPL, but, really, the
value proposal proposition is for those groups. Fintech and
fintech underwriting, use of alternative data like cash-flow
data as opposed to credit scores and the like, the evidence on
that is very clear that increases competition and benefits
people most who are traditionally underserved and where
traditional competition among banks is not very robust, which
includes rural communities, obviously.
Mr. Moore. Mr. Palaniappan and Mr. Lefton, how have earned
wage access services improved financial stability for workers,
and how are these products helping make everyday expenses more
manageable?
Mr. Palaniappan. Thank you for the question. The first
thing that earned wage access does, which is what most people
expect, is it helps people pay their bills on time so there are
fewer late fees on bills, there are fewer other expensive fees
because they are paying their bills on time. There are also
nonfinancial benefits where there is less stress. So, I hear
from our customers how they are able to send their children on
field trips because they have access to our product, which they
would not have been able to do otherwise, celebrate birthdays
on the right days, go to see a dentist when the tooth starts
aching instead of putting that off to Friday. I spoke with a
customer. She works in healthcare and her daughter likes to
dance. She has to pay for dance classes at the beginning of
every month, and she would not have been able to do that
without EarnIn. So, her daughter goes for dance classes and,
today, takes part in dance competitions and can follow her
passion for dance because of EarnIn.
The other benefit that I spoke about in the testimony as
well is that incomes go up. Incomes go up by over 10 percent.
From the EarnIn dataset, a study on over a million customers,
incomes went up by 11-and-a-half percent. That is about $335
per month, and so we are seeing incomes go up as well when
people start using earned wage access. From our data, we are
actually seeing incomes go up faster than inflation, and so we
are seeing wage growth in real terms as well.
Mr. Moore. Over what time period have you seen those
increases?
Mr. Palaniappan. We have seen wage increases higher than
inflation over the last 3 years.
Mr. Moore. Mr. Lefton, did you care to respond as well?
Mr. Lefton. Sure. Well, first, I agree with everything that
was just said. I think one of the things we need to remember
when we are talking about EWA is that EWA users are not
financially illiterate. They are just experiencing a frequency-
of-pay issue, and so I think it is important we do not conflate
the two, right? Consumers use EWA because they need to be paid
on their own timeline, not because they do not know how to
manage their own money. I think that is a very important
distinction. We need to trust that the user is in the best
position to know how and when to access their wages and manage
their money.
Mr. Moore. One thing that seems to have worked to me at the
State level and otherwise is really to try to bring about
innovation. Like the regulatory sandbox legislation, our State
adopted that a couple of years ago, and it allows financial
institutions and technology firms to test new products under
the supervision of regulators. So, I guess just a follow up
question to Mr. Zywicki: how can regulatory sandboxes help
regulators better understand new fintech products before
imposing broad rules?
Mr. Zywicki. Yes. Briefly, I will just amplify on the EWA
question some of the points that my colleagues have made here,
which is, I think the best study on this is the Davis study,
who, in addition to finding income goes up, also finds that
there are no financial problems--people do not overdraft more,
do any of that sort of stuff--as opposed to the Connecticut
study where they found losing access to EWA led to a lot more
payday, having to sell products, and that sort of thing. With
respect to sandboxes, I think sandboxes are revolutionary. I
think they are super important. The ability to get real-time
information, tweak products. Even the discrimination-type
questions that were being raised, I think could be addressed
very well with regulatory sandboxes to make sure those products
operate the way they should.
Mr. Moore. Thank you, and my time is up. I did have other
questions for the other witnesses, but I appreciate you all
being here today. With that, I yield back.
Chairman Steil. The gentleman yields back. The gentlewoman
from Texas, Ms. Garcia, is recognized for 5 minutes.
Ms. Garcia. Thank you, Mr. Chairman, and thank you to all
the witnesses, and I first want to associate my remarks with
the remarks of Mr. Torres. I think they were right on point. To
the chairman, I did not sack potatoes, but I sure as hell
picked cotton.
[Laughter.]
Ms. Garcia. We did not get paid daily. We had to work our
asses off in the hot Texas heat all week until we saw any money
Friday afternoon but it just underscores the point that workers
do deserve to get paid and get paid well, and not under the
table, to avoid all these things, and to make sure that they
can have access to their money when they are needed.
Like Representative Pressley said, I am waiting for the
layaway plan because one of the things my mother used to do at
the beginning of the cotton season is take us into town, and we
would pick what we thought we might need for school in
September, and then she would pay weekly until we got to
September. Now, if you gain a little weight, you are in
trouble, but that is how it was done, and some people are still
living paycheck to paycheck. According to the Urban Institute,
52 percent of Americans do not have the money to cover
essential costs, such as housing, food, healthcare, childcare,
transportation, and education. Fifty-two percent. That is a lot
of people, but in my district it is even worse: 74 percent. Let
that sink in.
So, as many of my colleagues mentioned, there is an
affordability crisis. To call it a hoax is just flat a hoax.
The American people are struggling to support themselves and
their families day by day, paycheck to paycheck. That is why
many Americans turn to alternative income sources that we have
been discussing today. However, as financial technology and
these products become more common, I share my colleagues'
concerns that without consumer protection, these products will
only take more money out of consumers' pockets.
Ms. Hand, as we discuss how to regulate these products,
several people have said that especially the earned wage access
is free. Is it really free?
Ms. Reynolds Hand. There are a variety of different
products in the marketplace. In fact, we have recently looked
at 23 different companies out there, both employer-sponsored
and direct-to-consumers. The employer-sponsored products are
typically less risky and, basically, you see what you have
heard here today.
Ms. Garcia. But are they free?
Ms. Reynolds Hand. Those products can be free. For more of
the direct-to-consumer products, some of them have free
options, but then they do have fees, so they are effectively
not free. Some of those free options we have seen are hidden,
and consumers are defaulted into fee structures which may be
clear and hidden. The other thing that I would add is that many
consumers are using these on a weekly basis, so they are
effectively stacking fees on a weekly basis and then their
ability to repay over time. So, I would say that, effectively,
these are not free products.
Ms. Garcia. Okay. Now, what about the buy now, pay later?
Is that free?
Ms. Reynolds Hand. There are simple products, pay in 4,
where if a consumer is successful, that is effectively a free
service. Then you go down the installment path where these are
loans, they are structured as such, they have interest, and I
think one of the challenges that we have seen is oftentimes--
the consumers and our research support this--they see an
advertisement, they go to pay for something, and they get
offered the pay in 4 product. Then they go through the
application, and they end up in an installment loan product
and, oftentimes, are not really aware of the long-term effects,
so it is not free.
Ms. Garcia. So, do some have the APR as high as was
illustrated by his example? I mean $1 on a hundred dollars does
not sound bad, but once you do the math, the percentage is
really high.
Ms. Reynolds Hand. Yes. If that one dollar then gets
deferred, you add on late fees. If those apply or the consumer
simply does not have the ability to repay in the time that they
have originally agreed to, that will put a consumer into a fee
structure.
Ms. Garcia. Yep. Just curious, what would you consider a
fair fee for the service? Let us not talk yet about penalties
and installment payments later or anything. It seems to me that
one of these products is no more than a high-tech payday loan
service.
Chairman Steil. We will allow the gentlewoman to submit
answers in the record.
Ms. Garcia. I was just beginning to have fun.
[Laughter.]
Ms. Garcia. Thank you. Thank you to all the witnesses.
Chairman Steil. We thank the gentlewoman. The gentlewoman
yields back. The gentleman from California, Mr. Liccardo, is
recognized for 5 minutes.
Mr. Liccardo. Thank you, Mr. Chair. I want to thank all the
witnesses for their testimony and, particularly, Mr.
Palaniappan--please forgive me if I just mispronounced your
name--but it is good to have a local company here, and
congratulations on the great success of your company. I
appreciate very much what EarnIn has done to enable millions of
American workers to have more freedom in their lives. That is
very important. I also, by the way, appreciate Ms. Reynolds
Hand's important observations. I think we have good players and
we have bad players in this industry. Like all industries, we
need transparency. We appreciate those who are transparent, and
for those who are not, that is why we need simple, predictable
regulations, so very much appreciate points being made all
around.
I would like to shift gears, though, from EWA to the
broader topic of the hearing and the subcommittee, which is
around fintech regulation and innovation.
Ms. Kelley, I am going to turn to you because I know you
represent a lot of folks in the industry. An awful lot of focus
in recent weeks and months has been whether or not fintech
companies can get access to the Federal payment rails--FedNow--
and other transmission means, like Fedwire. I think there has
been a lot of discussion, certainly Treasury publicly as well
at the Federal Reserve. There is now, I think, a request for
information from the Fed. They are looking for feedback about
what a skinny account might look like or a payment account as
a, I guess, an option that would be distinct from a master
account. I guess, regardless of whether the Fed or Congress
creates this, clearly there needs to be some regulation on
those fintech companies that would avail themselves of this
opportunity and there are a lot of ideas from the Bank Policy
Institute (BPI), from Fed, and others about what regulations
those companies should be subject to, things like Bank Secrecy
Act and Know Your Customer (KYC), and anti-money laundering,
whether or not they should be prohibited from overdrafting,
from charging interest, et cetera. Do you have some views about
what regulations would be appropriate for us to be thinking
about here?
Ms. Kelley. Yes, and thank you for the question. It is a
particularly dynamic and interesting time to be in this
industry, and I think what you have just described reflects
that. So, I would start by saying in the relationships that
exist now between banks and fintechs where they partner to
provide services, there is a holistic set of regulations. There
were interagency guidelines that were released in 2023 that,
effectively, require banks to ensure that their fintech
partners are following the same regulatory requirements that
the banks must follow. So we are operating against that
backdrop. As we look forward and say should these
nontraditional bank fintechs have access to the Federal
Reserve, that is a conversation that has begun with the request
for information (RFI) and the conversations around the skinny
master accounts.
We are in very early days of those conversations, and I
know the industry as a whole is still trying to understand
exactly what that would look like but what is clear is there
needs to continue to be a balance between fostering innovation
that we see from nontraditional banks, but ensuring safety and
soundness as well. The skinny master accounts is one attempt to
strike that balance and, again, still in the early days.
Mr. Liccardo. Okay. So, no commitments yet about what
concessions industry might make, about what regulations would
be sensible for this----
Ms. Kelley. Yes, I think it is still an open question.
Mr. Liccardo. Okay. Well, I look forward to continuing to
engage with you and with your members to understand what that
might look like.
Ms. Kelley. Absolutely.
Mr. Liccardo. I think this is coming at us pretty fast, and
we probably need to understand best how to respond. Regardless,
I appreciate the efforts of many fintech companies to innovate
in a space where I think consumers do need more choices, and I
appreciate the work that is being done by many of the companies
here. Thank you.
Chairman Steil. The gentleman yields back. I would like to
thank all of our members for their questions today, all of our
witnesses for your testimony today.
Without objection, all members will have 5 legislative days
to submit additional written questions for the witnesses to the
chair. The questions will be forwarded to the witnesses for
their response. Witnesses will please respond no later than
February 17.
[The information referred to can be found in the appendix.]
Chairman Steil. The hearing stands adjourned.
[Whereupon, at 12:01 p.m., the subcommittee was adjourned.]
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