WA: Testimony in Opposition to Washington State HB 1874

TO: The House Committee on Consumer Protection & Business

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

DATE: January 10, 2024

SUBJECT: House Bill 1874

Position: Oppose.

Testimony:

Thank you Chair Walen, Vice-Chair Reeves, and members of the House Committee on Consumer Protection & Business for providing me the opportunity to testify before you in opposition to House Bill 1874 (HB 1874). My name is Phil Goldfeder, and I am the CEO of the American Fintech Council (AFC). As a former member of the New York State Assembly, I understand the importance of crafting legislation that adequately protects consumers while ensuring they receive the services they need.

AFC’s mission 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 consumer segments and geographies. We strongly believe that responsible credit, made available to consumers at 36 percent interest or below, is especially important in the current interest rate environment.

Unfortunately, while AFC agrees with the ideals of the bill to protect consumers from predatory loans, we believe that the bill, in its current form, would advance a definition of a “loan” that is incongruous with established legal definitions and actually decrease access to responsible credit by establishing an unclear standard and inadequate test for evaluating the true lender of a loan.

In practice, the definition expressed in the bill would stymie consumer-focused products like Earned Wage Access (EWA), because it would inadvertently apply Washington’s lending statute to EWA. In turn, this would limit the ability for EWA providers to offer their products to Washington consumers. As AFC has consistently stated, EWA is not a loan, and should not be regulated as such. To avoid this issue fully, we believe that any legislation amending the definition of a “loan” put forth should explicitly exclude EWA products from being subject to the definition.

As proposed, HB 1874 will establish an unclear standard for which entity within a bank-fintech partnership constitutes the “true lender” of the loan. It is important to note that long-standing precedence finds that financial institutions, who originate the loans in a bank-fintech partnership, are in fact the true lender.

In addition, HB 1874 promulgates a “predominant economic interest test” to evaluate the true lender of the loan. AFC has opposed the use of this test for determining the true lender, because it does not adequately represent the myriad of requirements and practices detailed in a responsible bank-fintech partnership, as well as the long-standing precedence that the entity named on the origination documentation is the true lender of the loan. In practice, the use of a predominant economic interest test to determine the true lender of the loan will limit the options for responsible banks and fintechs to operate in Washington and, in turn, limit the availability of access to responsible credit for Washingtonians who need it the most.

In closing, I thank you again for the opportunity to raise my concerns regarding HB 1874. I hope that you take this opportunity to table HB 1874 for further study about the impacts to Washington consumers. I am happy to answer any questions you may have.