NY: American Fintech Council New York Hearing Written Testimony

TO: New York Assembly Committee on Banks and Committee on Science and Technology

FROM: Hon. Phil Goldfeder, CEO, American Fintech Council

DATE: March 7, 2024

SUBJECT: Impact of financial technology (Fintech) and its role in New York’s banking industry

Re: American Fintech Council’s Written Testimony on the Impact of Fintech in New York’s Banking Industry

Thank you, Chair Hunter, Chair Otis, and members of the Assembly Committee on Banks and Committee on Science and Technology, for providing me the opportunity to submit my written testimony to you on the impact of financial technology (Fintech) and its role in New York’s banking industry. My name is Phil Goldfeder, I am a former member of this Assembly, and I now continue my public service as the CEO of the American Fintech Council (AFC).

AFC is the premier, standards-based trade association representing responsible fintech companies of all sizes and their innovative partner banks. As its CEO, I recognize that not all fintechs are created equal. Our mission at AFC is to promote an innovative, transparent, inclusive, and customer-centric financial system by supporting responsible innovation in financial technology (Fintech) and encouraging sound public policy. AFC members are at the forefront of fostering competition in consumer finance and pioneering ways to better serve underserved communities. AFC’s members are committed to providing innovative products that address consumer demand without compromising on regulatory compliance.

As evidenced by the title of this hearing, our purpose in this written testimony is to specifically discuss the impact that fintech is having on the banking industry in New York. Most importantly, I must discuss the impact that responsible fintech companies and the banks that power them have on New York consumers every day. First, AFC members are serving New York consumers without compromising on consumer protections. Through responsible fintech companies, consumers once thought too risky or unprofitable now have access to the financial services they need. This fact is most clearly evidenced by the millions of consumers that have been served by AFC member companies. Through the products and services offered by AFC members, New York consumers have been able to

• receive previously unavailable credit at responsible rates to consolidate debt and pay it off more quickly;
• make real-time payment to ensure that they can send and receive money instantly;
• split purchases into more manageable amounts while still gaining the goods and services they need and improving their credit score; and
• access the wages for the work they completed as opposed to waiting for the end of an arbitrarily set pay period.

Fintech, at its core, is about using technology to enable existing financial products and services to reach more consumers and creating new products and services to uniquely serve consumers’ demands. As I noted, not all fintech is created equal. In that same vein, not all fintech products and services should be regulated the same. Painting fintech with a broad brush creates challenges for responsible actors. Regulating in a manner that does not consider the nuances and differences existing between various products and services stymies the innovations, and, at times, restricts or eliminates their ability to be offered to consumers.

Importantly, when considering how to regulate a specific fintech product or service, AFC believes that when technology is enabling an existing financial product or service to reach more consumers, the existing regulatory framework for similarly situated products is generally sufficient. However, when technology is used to create a wholly new product or service, then a distinct regulatory framework is required. It is crucial that New York policymakers and regulators understand the relevant distinctions between each fintech offering and seek to craft the correct regulatory structure for each financial product.

Buy-Now-Pay-Later (BNPL) and Earned Wage Access (EWA) are two such fintech offerings that have helped thousands of New York consumers but require different regulatory frameworks to ensure that the products can continue operating in a responsible manner.

Buy-Now-Pay-Later

BNPL operates as a loan and is an alternative to high-cost credit cards. BNPL loans are offered at the point of sale to consumers to provide them with the opportunity to make purchases that fit within their budget. BNPL loans offer zero-percent interest and are repaid in four installments or less. Responsible AFC members adhere to AFC’s standards regarding BNPL, which ensure that consumers receive clear and conspicuous disclosures in accordance with the Truth-in-Lending Act and are underwritten with an understanding about their ability to repay. Further, responsible BNPL providers work with credit bureaus to ensure that consumers’ credit scores are not harmed by taking the loan, as BNPL can currently appear as multiple trade lines on a credit report. Therefore, it is prudent to regulate such products as loans.

Earned Wage Access

In contrast, EWA services are not loans and should not be regulated as such. EWA operates as a responsible and innovative alternative to payday and predatory loans. The service is categorically distinct from a loan. EWA services do not engage in the mandatory fees, interest accrual, or harsh debt collection practices found in payday lending. EWA is able to exist because of the technological innovations leveraged by EWA providers and is an entirely new service. Therefore, the prudent path forward is to regulate this service through a bespoke framework that adequately considers the nuances of the service. To that end, other states, such as Nevada and Missouri have already passed legislation creating a bespoke regulatory framework for EWA that ensures these providers can responsibly and effectively operate in those states while also ensuring that important consumer protection and compliance requirements are in place. AFC recommends that the members of the assembly look to these laws when considering a regulatory path forward for EWA.‍

Bank-Fintech Partnerships‍

Underpinning both the BNPL and EWA services discussed above are fintech companies that partner with banks. Responsible bank-fintech partnerships create critical access to financial services and help keep community banks competitive. Partnering with fintech companies has provided a viable path for community banks in an increasingly consolidating market. At a time when banking deserts are proliferating and community banks offering relationship-based banking are trying to remain profitable in an increasingly difficult economic, political, and market environment, responsible bank-fintech partnerships are helping to mitigate these issues. In turn, these responsible bank-fintech partnerships have provided consumers with access to modern financial services through the innovations furnished by fintech companies but remaining rooted in the regulatory compliance and consumer safety and soundness that comes from regulated and insured banks.

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In closing, AFC stands ready to work with the members of this Assembly to craft clear guardrails that will ensure responsible fintech companies and the banks that power them are able to continue effectively serving New York consumers and improve the competitive landscape of financial services in the state. Whether through modernizing existing regulations or developing new frameworks for innovative financial products and services, AFC welcomes the opportunity to continue engaging with this Assembly. Please feel free to contact me with any questions regarding the bill at phil@fintechcouncil.org. I welcome your inquiries.

Sincerely,

Hon. Phil Goldfeder, CEO
American Fintech Council