WASHINGTON — Democrats on the Senate Banking Committee called for stronger consumer protections around novel financial products on Tuesday, arguing too little is done to police fintechs. But a top Republican and industry supporters countered that a heavy regulatory hand would stifle innovation and hurt consumers who could benefit from new alternatives.
The committee's Democrats focused largely on three types of products that have grown popular in recent years: buy now/pay later, where consumers can pay for retail purchases interest-free in a handful of regular installments; earned wage access products, which proponents tout as a safer alternative to payday loans; and training repayment agreements, or employer contracts that can require new hires to pay their company back for certain education programs.
For two of those three products — BNPL and earned wage access — Senate Banking Chair Sherrod Brown, D-Ohio, suggested that "stronger consumer protections" could make them significantly more palatable.
"Newer credit products, like buy now/pay later, could help consumers pay for products in installments, with strong consumer protections. Yet many of these products come with hidden fees, they lack transparency, and they aren't underwritten properly," Brown said.
He added later that "employer-based earned wage advances with strong consumer protections can help workers cover unexpected expenses or emergencies — though the better alternative would simply be for the companies to pay their workers enough to live on."
But the Ohio Democrat had harsher words for training repayment agreement programs, arguing that their acronym of "TRAP" was painfully apt. Brown described the debt product as "so predatory, so offensive" that it "should have no place in our financial system."
Among committee Republicans, only Ranking Member Pat Toomey of Pennsylvania asked questions during the hearing. His opening remarks stressed the upsides of financial innovation and warned Democrats about the potential risk of squashing it with heavy regulation.
"As long as consumers have truthful and accurate information about financial products, they're best positioned to decide what products to use," Toomey said. "Any regulation of financial products should fit the product type, make room for innovation, and maximize consumer choice. Too often, however, the response from my friends on the other side of the aisle is to see something new and panic."
The hearing's panel of fintech advocates echoed that sentiment. Penny Lee, CEO of the Financial Technology Association, said that the polling firm Morning Consult recently found that 94% of BNPL users said they understood the terms and conditions.
"I think that's a very high mark of people that really understand what these products are, what their obligations are about, and have a full understanding of the terms," she said.
The Consumer Financial Protection Bureau's recent advisory on the products was mild, but some analysts say it's only a matter of time before the agency develops more prescriptive rules and targets providers for enforcement.
That poll was
Democrats otherwise asked witnesses how Congress could improve the broad supervision of novel financial products. Sen. Mark Warner of Virginia said he would like to see policymakers reconsider the authority of the Office of the Comptroller of the Currency to issue bank charters to fintech companies — an effort that
"There was probably some disagreement, even on my side of the aisle, when the OCC was talking about" the fintech charter, Warner said on Tuesday. But "I personally think we may want to revisit that, because at least it sweeps some of these entities into some regulatory structure."
Rachel Gittleman, financial services outreach manager at the Consumer Federation of America, argued to lawmakers that many of the products described as "novel" by their backers could still fall under existing legal umbrellas and be regulated as such.
"We've appreciated the [Consumer Financial Protection Bureau]'s inquiry into BNPL providers, and we look forward to seeing what research they've found," Gittleman said. "But we would also encourage them to supervise the fintech lenders we are talking about today under the various different authorities" that already exist "so that consumers are protected, and that regulated entities have a very clear sense of what is permitted."
Claire Williams contributed to this article.
