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FIN Welcomes OCC Fintech Charter Announcement

July 31, 2018 – The Office of the Comptroller of the Currency (OCC) today announced it will begin accepting applications for national bank charters from financial technology firms. FIN has supported the OCC’s two-year effort to foster a national approach to the regulation of financial services.

The following statement is attributed to Brian Peters, Executive Director of Financial Innovation Now:

“As outlined by Treasury earlier today, the regulatory landscape must adapt and grow along with changes in technology and customer preferences. The OCC’s decision to issue special purpose bank charters to financial technology companies is a recognition that the current regulatory environment must evolve. FIN appreciates the OCC’s affirmation of a national regulatory approach to technology, and while any one FIN member may not seek a special purpose charter, FIN nonetheless supports the OCC’s leadership and vision in driving this regulatory discussion. We look forward to working with the administration and Congress on multiple national regulatory paths to market.”

The OCC’s announcement today was accompanied by a policy statement clarifying its chartering authority and a supplement to the OCC’s licensing manual. The announcement followed Treasury’s release of an extensive report on the regulation of financial technology, which is available here.

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FIN Statement on U.S. Treasury Report on Financial Technology; Leading Innovators Praise Policy Goals

July 31, 2018 – The U.S. Department of the Treasury today released a report outlining a number of policy proposals to modernize federal financial services regulations. The Treasury report aligns with many of the policy recommendations of Financial Innovation Now, such as streamlined federal rules, open data, payment innovation, and tech-neutral security.

The following statement is attributed to Brian Peters, Executive Director of Financial Innovation Now:

“Financial Innovation Now advocates for smart federal policies that promote technological innovation in financial services, and we believe the Treasury Department’s report is a strong step towards modernizing antiquated financial regulations. From secure mobile payments to fast and accessible credit, FIN member companies are empowering consumers and small businesses with helpful financial tools. We look forward to working with Congress and federal financial regulators on these necessary policy updates.”

The Treasury report is available here.  Today’s report was in response to Executive Order 13772, issued by the President on February 3, 2017, which calls on Treasury to identify laws and regulations that are inconsistent with the administration’s Core Principles for financial regulation.

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U.S. Report on Financial Technology – Key Takeaways

The U.S. Government Accountability Office (GAO) recently released a report on the regulation of financial technology. The report, “Financial Technology: Additional Steps by Regulators Could Better Protect Consumers and Aid Regulatory Oversight,” fulfills a request from Congress to provide details and recommendations on how to modernize the financial regulatory environment for technology in the United States. The GAO’s findings focus on four areas of financial technology: payments, lending, wealth management and financial advice, and distributed ledger technology. The report discussed several key findings, including that the U.S. regulatory structure poses some challenges to financial technology firms. It also found that financial technologies provide benefits to consumers, leaving them more satisfied than services offered by traditional providers. Below are three key takeaways:  

Security

Fintech payment services provide increased security for users. Mobile devices contain additional security features, like fingerprint readers, facial recognition, and additional password requirements. These features make it increasingly difficult for bad actors to obtain consumers’ financial information. If nefarious actors do gain access to a device, there is the option to remotely disable that device and prevent personal information from being manipulated. Furthermore, as noted in the report, while credit and debit transactions have traditionally “transmitted sensitive information that can be hacked and used to make fraudulent transfers, fintech providers’ mobile wallets generally replace this sensitive information with randomly generated numbers that mitigate the risk that transaction information can be used fraudulently (tokenization)” (pages 14 and 15).   

Convenience and Consumer Satisfaction

While improved security may be the largest incentive for using digital payments, the convenience factor cannot be ignored. Non-bank digital payments allow users to easily and quickly transfer money, make payments, obtain loans, and access information from all of their financial accounts on one dashboard. Traditional banking systems tend to operate within a limited time frame, but digital options operate 24/7 in real-time making them more accessible to users (page 13).

Payment innovations not only provide convenience for consumers, but also save them money. The report details several ways in which fintech providers are lowering costs for consumers, including that many providers are not charging fees for payments (page 13).

Users’ overall satisfaction with new payment technologies is demonstrated by the available regulatory data. Compared to traditional providers, consumer complaints against fintech firms is modest. The GAO’s analysis of the CFPB’s consumer complaint database showed that “the number of published complaints submitted against several prominent fintech firms from April 2012 through September 2017 included in this database was generally low, when compared to select large financial institutions” (page 39).

Regulatory Environment

The state-by-state regulatory approach for money transmission is harming innovation and slowing access to new payment services. As the report notes, “complying with fragmented state licensing and reporting requirements can be expensive and time-consuming for mobile payment providers and fintech lenders” (page 45). Due to this regulatory barrier, fintech innovators are avoiding the U.S. and taking their business elsewhere. GAO cites one example of a fintech startup that “spent half of the venture capital funds it had raised obtaining state licenses,” and “that some firms may choose not to operate in the United States.” Furthermore, firms have commented that “identifying the applicable laws and how their activities will be regulated can be difficult” (page 45).

Meanwhile, as the report explains, “regulators abroad have taken various approaches to encourage fintech innovation….establishing innovation offices to help fintech firms understand applicable regulations and foster regulatory interactions. Some use “regulatory sandboxes” that allow fintech firms to offer products on a limited scale and provide valuable knowledge about products and risks to both firms and regulators” (page 50). The report demonstrates that the U.S. needs more proactive leadership from policymakers to encourage and attract innovation.    

Notably, the report does suggest that “specialized operating charters offered by federal and state banking regulators may help fintech firms more easily operate nationwide…” but state regulators are blocking these pathways to the market (page 47).

As the GAO report concludes, the emergence of financial technologies has provided numerous benefits to consumers, including the convenience of reliable financial services.

 

Industry Group Releases Faster Payments Governance Framework Draft, FIN Urges Inclusive Approach

April 24, 2018 – Under leadership of the Federal Reserve, an industry group today called for public input on a draft proposal for a new payments governance organization that aims to facilitate faster payments in the United States. FIN is a member of the Fed’s formation team that developed today’s draft.

The following statement is attributed to Brian Peters, Executive Director of Financial Innovation Now:

“For the American family trying to pay bills on time, or the entrepreneur trying to purchase inventory, it should be a given that payments happen in real-time, especially in our increasingly digital economy. If industry is to achieve real-time payments on its own, it will require a modern payments governance organization, one with equal representation of all affected stakeholders and a meaningful capacity for governance. FIN is hopeful that many non-bank innovators engage the Fed’s comment process to push for an inclusive organization. FIN commends the Fed’s leadership and looks forward to ongoing collaboration through the GFFT process.”

Stakeholders can review the draft governance proposal and submit feedback via an online survey now through June 22 at FedPaymentsImprovement.org.

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House Passes Bill to Modernize IRS, Enable Digital Financial Tools; FIN Priority Moves to the Senate

April 19, 2018 – The U.S. House of Representatives today passed legislation to automate income verification through a modern digital interface at the Internal Revenue Service. FIN has advocated for this legislation and looks forward to working with the Senate towards final passage into law. The House today passed a larger tax modernization package, H.R. 4554, which included legislation authored by Rep. Patrick McHenry (R-NC) and U.S. Sen. Cory Booker (D-NJ), the IRS Data Verification Modernization Act of 2017, H.R. 3860.

The following statement is attributed to Brian Peters, Executive Director of Financial Innovation Now:

“Today’s House action helps bring the federal government one step closer to better enabling digital financial tools. Paper-based verification has no place in a 21st century economy, and FIN looks forward to working with Congress and the U.S. Treasury to ensure the Internal Revenue Service can build a robust and secure interface for digital income verification. FIN thanks Congressmen McHenry and Blumenauer for their leadership on this important effort.”

Background: As part of the loan and mortgage processes for consumers and small businesses, applicants often must complete an IRS form called a “4506-T,” which gives the lender the right to access a summarized version of their tax transcript. This manual process at the IRS takes days, whereas technology companies and financial institutions are using APIs and other ways to leverage data for nearly instantaneous verification and underwriting. The IRS Data Verification Modernization Act of 2017 was introduced in the House by Reps. Patrick McHenry (R-NC) and Earl Blumenauer (D-OR), along with companion legislation in the Senate by Senator Cory Booker (D-NJ) and Mike Crapo (R-ID).

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House Passes Lending Fix Legislation; FIN Urges Senate Consideration

February 14, 2018 – Tonight the House of Representatives passed, on a bipartisan basis, the Protecting Consumers’ Access to Credit Act of 2017, H.R. 3299, which restores consistency in lending laws across state lines.

The following statement is attributed to Brian Peters, Executive Director of Financial Innovation Now:

“America’s small businesses should have easy access to safe forms of credit. Tonight’s bipartisan House vote is a strong signal that Congress supports tech and bank partnerships, and FIN applauds the leadership of Congressmen McHenry and Meeks and their colleagues in the House for their support of H.R. 3299. This legislation will restore the valid-when-made principle and maintain a well regulated option for bringing innovative capital access to underserved borrowers. FIN urges the Senate to take up this important legislation and looks forward to working with Senators Warner and Toomey towards that important goal.”

FIN Executive Director Brian Peters Testifies Before Congress; Technology Can Help Financial Inclusion

January 30, 2018 – FIN’s Executive Director, Brian Peters, today testified before the House Financial Services Committee at a hearing about the opportunities and challenges of financial technology. FIN’s written testimony can be found here, and Peters’ oral statement follows the hearing video below.

 

“Thank you Chairman Luetkemeyer, Ranking Member Clay, and members of the Committee for the opportunity to testify. My name is Brian Peters, and I am the Executive Director of Financial Innovation Now (“FIN”), an alliance of tech companies working on policies to make financial services more accessible, safe and affordable. The members of FIN are Amazon, Apple, Google, Intuit, and PayPal.

“These companies are at the forefront of America’s economic growth. They collectively employ over 700,000 people and spend more on R&D ($40 billion annually) than any other companies in the United States.

“They are innovating many new financial tools, such as digital wallets, secure online payments, personal finance apps, and access to capital for small businesses. Many of these tools work in partnership with traditional financial institutions.

“We believe that one of the best opportunities of technology is the potential to improve financial inclusion, and increase access. Twenty five percent of Americans remain unbanked or underbanked, but there is growing evidence that the mobile internet is helping to reduce some of the traditional barriers to financial services.

“The speed of money also matters. In our era of instant messaging, it does not make sense that it can still take days for a payment to clear. For those on a tight budget, like the half of Americans living paycheck to paycheck, this delay could cause undue hardship in the form of high-cost alternative financial services, sometimes costing ten percent of income just to access money when it is needed.

“Fortunately, the Federal Reserve is shepherding a commendable industry-led effort to achieve faster payments by 2020. FIN is part of this effort and supports the Fed’s leadership because we want real-time payment clearing to be a 24-7 reality – as soon as possible.

“Financial management apps also offer another area of promise. These tools have helped millions of consumers and businesses create budgets, set savings goals, avoid fees, and find better offers … it’s like having your own personal accountant.

“Small businesses also have new options. FIN members already offer a broad set of small business technology tools, including payment processing, payroll, inventory management, sales and data analytics, and shipping logistics… all of which make basic elements of running a business faster and less expensive – both online, and on Main Street.

“We are now expanding this technology toolbox with the addition of capital, and it is our broader integration of these tools that enables small businesses to utilize their own sales and accounting data to qualify for capital quickly and conveniently. Importantly, early research shows that these sources of capital are filling gaps for underserved small businesses.

“All of these tools mean more competition and broader economic growth. These benefits could be enhanced through policies that keep pace with innovation and meet the needs of today’s consumers and commerce. My written testimony contains a number of common sense policy proposals for the Committee’s consideration. I will briefly mention several:

  1. Create an optional national money transmission license. Payment innovators currently are regulated under a fractured regime in nearly every state. An optional national license would offer consistent safeguards, and it would enhance innovation and consumer access to new payment options – evenly across the country.
  2. Update the Card Act to include oversight of card network rules and their impact on consumer choice and access to
  3. Restore the “valid when made” principle. FIN thanks the Committee for passing the Protecting Consumers’ Access to Credit Act, introduced by Congressman McHenry and Meeks.
  4. Support the good institutional work of financial regulators to better address technology, such as the OCC’s Office of Innovation and the CFPB’s Project Catalyst.

 

“Financial Innovation Now thanks the Committee for the opportunity to testify and we look forward to working with you towards a better financial services system. Thank you.”

FIN Supports ACH Payment Expansion, Weekend and Holiday Processing

January 26, 2018 – Financial Innovation Now today supported a NACHA proposal to expand same day payments and payment processing on weekends and holidays. FIN’s comment letter states:

“FIN member companies are enabling a wide array of economic activity to occur, on a second-by-second basis, among consumers, businesses, and workers. The trend towards flexible on-demand services and products needs an efficient, real-time payment system. This modern infrastructure is particularly important for those individuals and businesses seeking to avoid higher-cost credit alternatives. While the proposed rule changes could be more aggressive, they are a step in the right direction and help ensure that ACH remains a viable and robust payment rail in the rapidly changing modern economy.”

The full comment letter can be found at: http://financialinnovationnow.org/wp-content/uploads/2018/01/fin-nacha-same-day-ach-comment-1.26.18.pdf

FIN Welcomes CFPB Prepaid Rule Delay, Urges Ongoing Tech Flexibility

January 25, 2018 – Today the Consumer Financial Protection Bureau issued final changes to is Prepaid Accounts Rule, which include a delay in the effective date of the rule until April 2019. Financial Innovation Now has been seeking this delay.

The following statement is attributed to Brian Peters, Executive Director, Financial Innovation Now:

“FIN requested and received a delay of the prepaid rule until April 2019. We are pleased with the additional time and are hopeful the Bureau will approach digital wallets with the flexibility necessary to permit innovation and continued enhancement of access to financial services.”

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House Committee Passes Lending Fix Legislation; FIN Urges Swift Consideration on House Floor

November 15, 2017 – Today the House Financial Services Committee passed, on a bipartisan basis, the Protecting Consumers’ Access to Credit Act of 2017, H.R. 3299, which restores consistency in lending laws across state lines.

The following statement is attributed to Brian Peters, Executive Director of Financial Innovation Now:

“Today’s bipartisan effort is a strong signal that Congress supports tech and bank partnerships, and FIN applauds the leadership of Chairman Hensarling, Congressmen McHenry and Meeks, and their colleagues on the House Financial Services Committee for their bipartisan support of this important legislation. This legislation will restore consistency to the application of lending rules across state lines and ensure that certain technology company services can continue to partner with banks to expand access to credit nationwide. We urge the full House to take up and pass this legislation expeditiously.”

Similar bipartisan legislation has been introduced by U.S. Senators Warner (D-VA), Toomey (R-PA), Peters (D-MI), and Daines (R-MT). FIN recently joined a broad coalition of industry organizations supporting these bills, including the National Federation of Independent BusinessesIndependent Community Bankers of AmericaMarketplace Lending Association, and the American Bankers Association, which sent the following letter to the bipartisan sponsors of the legislation.

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