WA: Testimony in Opposition to Washington State HB 2083

TO: The House Committee on Consumer Protection & Business

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

DATE: January 10, 2024

SUBJECT: House Bill 2083

Position: Support with Amendments

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 to support House Bill 2083 (HB 2083) contingent upon the amendments I will detail below. 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.

The American Fintech Council’s (AFC) mission is to promote an innovative, transparent, inclusive, and customer-centric financial system by supporting the responsible growth of lending, fostering innovation in financial technology (fintech), and encouraging sound public policy. AFC believes that the goal of sustainable access to credit should be present in all lending and servicing components, and that innovation can be a driver of fair and responsible access to credit. Innovative fintech platforms can expand access for communities and small businesses that have been traditionally underserved through responsible lending and other non-loan products like Earned Wage Access (EWA), both of which create a more inclusive and resilient financial system. AFC supports a fair financial services system where products are designed in compliance with regulation and where predatory conduct has no place.

To that end, AFC supports HB 2083’s establishment of a 36 percent interest rate cap for small dollar loans offered in Washington. However, we believe that some specific amendments to the bill are needed to avoid any inadvertent expansion of Washington’s lending laws beyond actual lending products, and to avoid promulgating an inadequate test to determine the “true lender” of a loan.

Loans require the extension of credit, creating a debt, which is an obligation or liability to repay the money arising from this extension of credit. As written, HB 2083 would inadvertently expand the definition of a loan and operate in an incongruous manner with established statute regarding “debt” by holding that an advance of money is a “small loan” “whether or not the payee is made personally liable for repayment”.

As AFC has consistently stated, EWA is not a loan, and should not be regulated as such. In practice, this definition would stymie consumer-focused products like Earned Wage Access (EWA) from operating in Washington, because it would inadvertently apply Washington’s lending statute to EWA, and, in turn limit the ability for EWA providers to offer their products to Washington consumers. To reiterate, EWA is not a loan, and should not be regulated as such.

To avoid the aforementioned issue fully, I respectfully request that HB 2083 be amended to strike the “whether or not the payee is made personally liable for repayment” language and explicitly exclude EWA products from being subject to the definition of “small loan”.

Secondly, HB 2083 promulgates a “predominant economic interest (or PEI) test” to evaluate the true lender of the loan. I recognize that the PEI test would not impact the responsible lenders in AFC’s membership, because it only applies to small loan lenders operating in excess of the proposed 36 percent interest rate cap. However, AFC has opposed the use of the PEI test for determining the true lender in general, because it does not adequately represent the myriad of requirements and practices detailed in a responsible bank-fintech partnership.

In contrast to the PEI test, the “totality of the circumstances test” put forth allows responsible bank-fintech partnerships to flourish. However, when paired with the PEI test in statute, it creates a confusing evaluation framework that could lead to an unclear compliance and enforcement regime. Therefore, I respectfully request that HB 2083 be amended to strike the predominant economic interest test.

In closing, I thank you again for the opportunity to offer our support of HB 2083 contingent upon the inclusion of the amendments I put forth above. I am happy to answer any questions you may have.