The House Financial Services Subcommittee on Financial Institutions and Consumer Credit heard testimony on regulating the FinTech marketplace.

The Subcommittee offered the following key takeaways:

  • modern developments in digital technology are changing the way in which many financial services are offered and delivered; and

  • Congress and prudential regulators must continue to examine the FinTech marketplace to ensure that financial services entities are allowed to use FinTech to deliver new products and services while also protecting consumers.

Testifying before the Subcommittee, Nathaniel Hoopes, Executive Director at the Marketplace Lending Association, touted the role of marketplace lending platforms ("MPPs") in delivering products to underserved consumers, but said that "much work still needs to be done for more of the American 'middle class' to fully realize and benefit from the potential of MPPs specifically and FinTech more broadly." He expressed support for the Special Purpose National Bank charter under consideration by the Office of the Comptroller of the Currency ("OCC").

Brian Knight, Director of the Program on Financial Regulation and Senior Research Fellow at the Mercatus Center at George Mason University, suggested various avenues to improve the regulatory environment, including by conferring more authority to states to allow them to facilitate FinTech Innovation. For instance, he said, states could be allowed to grant special non-depository charters similar to those offered by the OCC. Mr. Knight also called for the establishment of regulatory "sandboxes" to allow for limited trials of certain products.

Brian Peters, Executive Director at Financial Innovation Now, advocated for modernization of the regulatory structure to keep pace with innovation. He also said that regulators need to coordinate more effectively, arguing that the "current structure is needlessly fragmented and inconsistent among federal regulators, and varies widely across state jurisdictions."

Andrew Smith, Partner at Covington and Burling, LLP, emphasized the importance of allowing for and encouraging partnerships between traditional banks and FinTech providers, saying that these partnerships are already "vigorously" regulated by the FDIC, and that courts should not take any action to limit such partnerships.

Professor Adam J. Levitin of the Georgetown University Law Center suggested (i) establishing a federal money transmitter license, (ii) facilitating consumer data portability, (iii) not granting federal charters for non-bank lenders except in limited circumstances, (iv) considering the adoption of an "ability to repay" requirement for consumer credit, and (v) requiring the Consumer Financial Protection Bureau to collect data on small business lending.

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