Transcripts For CSPAN3 Hearing On Consumer Financial Products 20220928

We dont like to start the hearing blade but sometimes we have to. Thank you for joining. Its good to see all of you. If youve been before the committee or worked around, thank you especially to those of you. The hearing is in a hybrid format and the witnesses are in person. Witnesses have the option to appear in person or virtually. Hardworking payoff for everyone as the American Dream and the dignity of work is all about the concept that was spoken of in the late 19th and early 20th centuries and popularized by doctor king. When work has dignity you can support yourself and your family and future but we all know whats happened over the last four decades. Corporate profits have gone up, the stock market soared, executive compensation has exploded. The wages havent kept up with a costofliving. Millions of workers with fulltime jobs who aspire to the middle class cant join no matter how hard they work and even people we may define as middleclass dont feel much security and stability. When workers are forced to find ways to make up for the gap between what they are paid and what they should earn what are they left with, debt. Sometimes people have to borrow money, products that are welldesigned and transparent and regulated can help workers pay off an unexpected car repair or help with a grocery bill recovery a medical expense. But as we heard in the listening session with workers last week and the committee, too often the products are not welldesigned they are really transparent and not well regulated for far too many workers the only credit products available lead to more debt and more financial instability. Weve discussed the impact the predatory payday lenders have on working families. Today we examine the impact of some new Consumer Financial products have on workers and Companies Tell Us the products are innovative, easy to use and give people more options but so often innovation is just a new way for companies to make money while trapping people and data. In debt. New credit products by now pay later could help pay for products and installments with strong Consumer Protections yet many come with hidden fees and lack of transparency, they are not underwritten properly and encourage consumers to use the plans for multiple purchases into multiple Online Stores racking up debt they cant afford to repay. Consumers like Breonna Taylor as a College Student she started off with one of these loans first one company then two then three and one told her they were raising the credit limit from 100 to 2,000 initially 18yearold she wasnt concerned as she put it if the companies believed in my ability to repay my debt than i did. Without the approval of more and more credits she was juggling 1,500 in loans with a different payment date throughout the month her account kept getting overdrawn. Her story gets to the core of the problem with little to no underwriting by now and Pay Later Companies dont know if they are the only ones a consumer has credit worth. Giving out disclosures a consumer is left in the dark to work for consumers we need the companies rules to follow and proper disclosure. There are new Consumer Products that use the socalled tips model structuring themselves to deliberately avoid disclosing the terms specifically avoiding important disclosures required by the truth in lending act, products like overdraft coverage, earned wage advances that are not offered in conjunction with employers models or consumers are asked to pay the tip to the lender instead of a fee or Interest Rate to use the products. Companies claim because the tip isnt presented as a finance charge or Interest Rate through lending and other Protection Laws like military lending laws that do not apply. It is voluntary they say, but of course they are not volunteering at all its a way to keep the system and hide the cost of workers. Employerbased advantages with strong Consumer Protections can in fact help cover unexpected expenses and build a better alternative would simply be for the companies to pay their workers enough to live on. Then there are debts products that are so predatory and so offensive they should have no place in our Financial System schemes like training, repayment agreement provisions appropriately known as traps and i will say this for the term that was invented its certainly truth in advertising the provisions and Employment Contracts allow employers to recoup the cost of those that leave the job and its an offensive concept if the employees job is to train the workers on the job training is into some special perk for the workers it is a smart investment for companies to require to be back for training if they leave the job within a certain period of time sadly workers with debt. Its a modernday version of the script the left by their employers. Remember what ernie ford is saying about you load 16 tons and what do you get another day older and deeper in debt. Employers use them to prevent workers from pursuing higher paying opportunities and decide how much the training would supposedly cost on the market and go after the workers threatening their credit and economic mobility. Last week cassie told members of the kennedy about her experience and pursuit of the calling as a nurse at the start of the job the employer made her sign a contract buried in the final print left she would be indebted to her employer for 7500 for the suppose that a training they provided which she decided to leave after the year because of the bad Work Environment her employer took a thousand dollars out of the second to last paycheck to pay back her training that was have her pay check the former employer told her they would send the rest to collections. Last i checked it was a legal in the United States but it looks like some enterprising companies are rebranding it with these contracts and that is the focus of todays hearing to ensure socalled innovation isnt a substitute for good pay and his isinto the cost of workers dignity. Senator. Thank you, mr. Chair manan thank you kindly for delaying the start of the hearing and to the witnesses. I was unavoidably delayed and i appreciated the accommodation of todays hearing about the new Consumer Financial products in the last decade we have seen Financial Institutions develop technology and solutions to meet the consumers needs. The choices create a more competitive marketplace all of which benefits consumers as long as they have truth. Best position to decide what products to use. Any regulation of the products should fit the type and make room for innovation and maximize the Consumer Choice. Too often the response from some of my friends on the other side of the aisle is to see something new and cannot. Lets talk about the new product is one of them is called the by now and pay later. Typically allowing consumers to make a purchases now and read pay them for interestfree installments later. The service can be a very attractive way to manage their cash flows to obtain the Services Without paying any interest. That is especially true for consumers who dont have or dont want to use their credit card for such purchases this may explain why its most popular among the younger consumers with shorter Credit Histories and if customers are late with payments, the companies sensibly suspend purchases until they are paid and some charge a late fee they pay a small percentage to offer the service and retailers that are willing to do this because they dont have to pay credit card interchange fees would increase sales and Customer Loyalty another new Financial Product provides shortterm funding is earned wage access. At the service can be appealing alternative to payday loans for workers who want an advance on the wages. They can help consumers lead to such expenses and others by advancing them the amount of income theyve earned at that point in the pay period. There are various products available and in some cases employers pay the fee for the service as an Employee Benefit while in others consumers must pay the fee. According to a recent study the average fee of the user paid for advance was between 2. 59 and 6. 27. Less than 5 the amount advanced. Ensure the marketplace competition successfully generated more and cheaper Online Options for many consumers to meet their needs. This is a reminder that the Market Competition is typically better at helping consumers down the government whether the product of the services in the Financial Sector or some other category. Other new Financial Products include forms of credit that exist for a long time but with innovations and how they are provided. In recent years the institutions primarily Community Banks have begun to partner with Financial Technology companies to offer improved products and reach more consumers. Banks and partners offer a large variety of credit products including small dollar personal auto in a Small Business loans as well as credit cards, mortgages and home equity credit lines. These can generate a significant consumer benefits by lowering the price expanding Consumer Choice and increasing competition. Often they provide access to credit for higher risk such as consumers with low incomes or no Credit History all through highly supervised Financial Institutions. Unfortunately, some bureaucrats and some lawmakers seem to react with hostility to almost any new Financial Products. Democrats in congress have branded the Bank Partnerships in general as in rent a bank schemes. Last year they overturned a rule that provided regulatory certainty for the partnerships. Unfortunately by attacking legitimate Bank Partnerships come our democratic colleagues risked restricting access to needed credit for lower income consumers and then theres the cfpb under director chopra theyve repeatedly demonstrated hostility to innovation and Consumer Finance markets for example the director has replaced the cfpbs office of innovation with the new office of competition innovation to advance his efforts to involve the cfpb and antitrust and competition law which is outside its jurisdiction. He also sidelined the office of Innovation Program to foster the invasion such as no action letters and regulatory sandboxes. Im also concerned they will bring this reactive antiinnovation perspective to his scrutiny of new Financial Products and already its made public statements to suggest hostility towards other products. All this hostility to the new products is evidence of the paternalism that we see sometimes in financial regulation. Individual consumers are better positioned in any bureaucrat or politician to understand their own individual needs and preferences and to make their own choices. Some of my colleagues ignore the benefits they derive from access to more choices in a more dynamic marketplace. The best form of Consumer Protection is a robust competitive market. Thats why instead of curtailing the new Financial Products that regulation should facilitate innovation and Consumer Choice. Thank you. I will introduce the four witnesses left to right the Financial Services outreach Consumer Federation of america. She leads the advocacy and outreach of highcost blending payday loans into their banking and credit issues. The ceo of the Financial Technology association served previously as the chief Strategy Officer of the Technology Incubator she previously served as the Senior Advisor to the Senate Majority leader harry reid. The professor is somewhat of a regular in the committee as the George Mason University professor of law at the segoviaa school of law a senior fellow at task force in federal Consumer Financial law in 2020. Welcome. The executive director towards justice litigated several class and collective actions to systemic injustice in the labor market and clerked for the chief judge for the district in massachusetts. If you could begin your testimony. Thank you. Chair man brown, Ranking Member, members thank you for the opportunity to testify before you today. Im the Financial Service outreach manager and a Nonprofit Association of the National State and local consumer groups focused on advancing the consumer interest through Research Advocacy and edification. New Consumer Credit products are exploding across the market areas. Some of the models, schemes and provisions discussed today or inherently deceitfully and predatory and others may help certain consumers manage their finances. But even those are not riskfree. Regardless of their core each of the products discussed our credit they provide funding for the promise of funding today and are repaid later and should be covered by basic Consumer Protection at the state and federal level especially given that they are disproportionately used by the end marketed to lower income consumers and consumers of color. By now later for the purchase upfront and the rest of the debt in three often interestfree installments over a set period. Plus they can last for the ability to repay leading to unmanageable amounts of debt consumers can face cascading fees, negative credit reporting, Debt Collection and difficulty with disputes and refunds. Earned products are funds advanced by the third party to a consumer before the regular payday. These wage advances are ostensibly lowercost forms of a payday loan requiring workers to pay to get paid and they can lead to the same cycle of borrowing as other payment loans even Free Products may still create a whole next weeks paycheck leading to a cycle of debt. The advances overdraft protection and other cash advanced products that collect or simply disguising under a new name like in a restaurant or Service Setting were unlike those they do not go to another human being but rather to the companys bottom line. The true cost isnt clear to consumers and the tips add up quickly costing nearly as much as traditional payday loans in some instances. Hidden deep in the Employment Contracts, the training payment provisions trapped consumers in the low paying jobs by requiring the repayments of the large fees for onthejob training or orientation. This is enforced if the consumer leaves either voluntarily or not before the arbitrarily determined state. The consumer is trapped with ofe threat of high Interest Rates should be viewed and regulated as such. They recommend state and federal regulators supervise to ensure they are compliant with credit, fair lending and consumer Protection Laws and not engaging in the discrimination or unfair or deceptive or abusive actual practices. Regulators should examine the pricing models and providers should only offer products after determining the consumers ability to repay. A load should be structured in an affordable way with proportional penalties. The cost of credit should be portrayed to consumers is an annual percentage so they can compare the products. Consumer data should be used in a responsible, transparent manner. State regulators, state and federal should collect, analyze and publish to better understand and eliminate the risk of the products into state and federal regulators should work across agencies and levels of government to ensure consumers are protected and actors are held accountable. Oversight is especially needed as each of the product sees either disproportionately used by or marketed to low income consumers and consumers of color without meaningful holistic underwriting, affordable rePayment Options and Price Transparency products may do more to exacerbate financial exclusions rather than promote financial inclusion. Each of these products shouldnt be allowed to use the guise of innovation to cover the lengthy Employment Contract or barcode label to shield themselves from federal and state oversight and regulation. Thank you for your consideration, and i am happy to take any questions. Thank you for allowing me to testify. Im the chief executive officer of the Financial Technology association a nonprofit trade association representing Industry Leaders shaping the future of finance. As we have seen over the past few years, nine in ten consumers use Financial Technology to manage and consumers confirm it saves them time and money 73 of says it helps them make better Financial Decisions into 71 says that helps produce financial stress. Today americans are more likely to report they are worse off than they were a year ago. To improve their Financial Security financial innovation allows a single mom the ability to buy medicine for a sick child or a parent the ability to purchase new School Supplies that better fit their Household Budgets and finances. Buy now pay later is an alternative Payment Option and enabling consumers to manage the cash flow and avoid paying high Interest Rate and fees with no extra fees if the consumer pays on time. It generates a vast majority of the revenue from partnerships with merchants not consumer fees. According to the Morning Consult poll conducted more than three quarters have a favorable opinion of the service and trust is to do the right thing for consumers. A 77 using multiple Companies Said it makes it easier to pay for purchases. The Financial Health networks recent study found that 99 understood the terms and conditions of the service. 96 had no difficulty in 4 were late or missed one or more payment. Importantly, they also support american Small Businesses by enhancing the Customer Experience facilitating Economic Activity and driving consumers inspection. The products are also subject to Consumer Protection regulations including antimoney laundering, Debt Collection, privacy, treatment of consumers and fund transfers. They are subject to similar state consumer Protection Laws. I will switch now to another product we mentioned earlier and wage access a critical area of innovation that offers flexibility through the demand the underling access to the already earned wages helping them make timely payments and avoid overdraft and manage any shortterm financial shock. Dwa surfaces have the more flexible and less expensive way to avoid missing a bill. Without these services, 44 of consumers will be unlikely to pay their bills on time and 38 would consider going into overdraft. The surfaces are nonrecourse and do not charge interest. If that means consumers have no obligation to repay and providers cant take action to collect payments. All products modeled are subject to Consumer Protection including fair treatment of customers. On behalf of the Member Companies i appreciate the opportunity to engage in the committee today on these issues. Innovations are driving the competition providing consumers greater choice that results in lower cost and better financial outcomes. We strongly believe the regulation is key to longterm success for all involved stakeholders and look forward to helping this discussion today. Thank you. It is a pleasure to be with you again today. Thank you. An Exciting Development generally and the products were focusing on today are good examples of the potential to improve consumer welfare especially with respect to consumers who have traditionally been excluded and have files for credit and also importantly important vehicles for promoting innovation and competition against incumbent providers who often get lazy if they dont have somebody nipping at their heels. The reality of the countrys middleclass consumers do pretty well in the consumer markets. Theres issues around the margins, but with respect to the mortgages, credit cards and the like the markets are transparent, competitive, plenty of choice and innovation and a little trouble finding the products they want. But the issue is what to do with people who dont necessarily qualify for these products that we have and this has been an issue thats record again and again and we see it with respect to the issue that these providers are providing that his isfirst what to do with wage workers paycheck to paycheck and wife does and took her own two week cycles so sometimes you need money in between for bills and emergencies alike as well as people who have opportunities about purchasing valuable products and in particular Consumer Products seen as a capital go to buy a house hold. The value may be the most important investment you make in your life if you think about the alternative. And a good example of that a lot of the products are basically providing useful lowcost and Convenient Solutions to problems for a long time. Its a good solution to the problem of what was originally the wage loans and payday loans and what weve recognized is innovation is the way that weve improved welfare for all American Consumers and particularly lower income consumers. A good example was the credit scoring and reporting in the 70s which dramatically increased competition expanding access to. For the broke down discrimination and inequality in the markets by basically getting rid of the old sort of ways of which lending was done to replace it with the scores and other algorithmic lending. And i think where there is Great Potential theyve proven themselves i think so far consumers have shown theyve used in a very valuable way and report at least overdrafts to use payday loans and pay bills late thats worth monitoring Going Forward but they seem to be using it as an opportunity to sync up their income with their expenses. So far its been a godsend it seems for a variety of reasons during the pandemic the purchases grows dramatically as people move to Online Shopping and it shows a flexibility to the Consumer Financial marketplace. Those have been especially. Because of the various reasons and regulations such as the amendment and the card act. Its provided a useful solution to that and i think the final lesson i would say is over time my big concern would be premature regulations that freeze the markets and impose unnecessary costs where the regulations may be archaic and designed for products that arent around anymore. I want to close by commending this very strongly starting off by the Research Understanding what the products are before plunging in while we should have aggressive enforcement Protection Laws. Good morning chairman brown. Im the executive director of justice. The employer driven debt is an innovation of corporate employers in the Financial Service sector that we should celebrate from the Regulatory Oversight yes suggest the forms are essential to workers who need access to credit to make ends meet, training to advance their careers or the cost of starting up a job. But the difficulty meeting financial demand seemed at the advancing professionally do not arise because of the access to credit. Its because far too many workers do not earn a living wage or have a predictable schedule that will allow them to meet the most basic financial obligations. Undermining the critical component of the dignity and Bargaining Power the ability to seek out other work that will pay them more antitrade to them better. To appreciate the importance of oversight and the enforcement of the worker and Consumer Protections we should understand employer driven debt. The debt affects workers like kathy whose story you heard earlier. The contract at the hospital she worked including a training repayment agreement provision like the contract of thousands and thousands of other workers, Truck Drivers, hairstylists, social workers and employees of pet smart. By trapping workers in these jobs these arrangements run counter to the principles of the competition and weve heard so much about today. The debt also affects the cleaning workers who come through the organizations claiming they were sold a subminimum wage job trust up as a cleaning Company Franchise and told they can finance the start startup cost and Franchise Fees through who then trapped them in a vicious cycle of debt and modernday servitude. Employer driven debt affects countless retail and Service Workers whose schedules and unpredictable and variable make it hard for them to make ends meet but instead of a fair schedule or a consistent living wage, the employer offers shortterm loans are often not disclosed. They will punish them through aggressive Debt Collection whether or not the contractual provision whatever be enforced. Its imperative therefore federal agencies provide Regulatory Oversight into vigorous enforcement in this space. The Consumer Financial Protection Bureau can guard against unfair and abusive and deceptive practices related to these products for the predatory debt arrangements that target immigrants and people of color in violation of the opportunity act to ensure the protections like the Debt Collection act apply to the efforts to aggressively collect debt and trap workers. Agencies like the ftc and department of justice Canada Police and regulate the market for the employer driven debt for the more mobility and the trafficking. As may be a kickback in the violation of minimum wage laws in the case of training the provisions and the underlining training isnt principally for the employees benefit but instead the standard training for the benefit of the employer the debt is likely minimum wage violation. In these cases the u. S. Department of labor can ensure employers do not keep the workers trapped in jobs through threats to collect such debt. Workers dont care if we understand their challenges as Consumer Protection challenges or labor challenges or competition law challenges. What matters to them as the government is there to police the abuses of the power and level the playing field. We appreciate the attention to this important matter. Thank you. The questions may be hybrid to soim sure you are aware of tha. With the new protections the committee is discussing to the products today its important to establish what type of Financial Products they are and its my question for you are the buy now and pay later a form of credit that falls within existing Consumer Protections . Yes. Thank you for the question. Each of the products are credit and should be treated as such by consumers and regulators are like. Those that lead for the training is that considered credit . Yes absolutely and they should be covered. Some employers may argue that the underlining training is not for the benefit of the employee and the personal benefit of the employee and in those cases its a violation of minimum wage laws and its important to have coordination between the department of labor on these issues. As youve said they are relevant Consumer Protections in the military lending act and i am glad as you mentioned in your testimony the cfpb under the leadership of the director acting like the consumer watchdog that is created to be. It raised the prospect of an economy in which employers pray upon their workers optimism turning debt into the mobility to discuss that. Absolutely. That is the purpose we often see the debt at issue far exceeds the value of the training for the workers who met didnt exceed 2,500, so its not an effort to recoup the training but very obviously on its face in an effort to trap workers. How does the limited Worker Mobility impact youve said what this means for employers. It means limited mobility for employees. How does that impact individual households and the broad economy . Thank you. The cost of the arrangements that indenture workers can be devastating. Weve spoken to workers trapped in an employment relationships to workers who arent being paid a living wage or what they are owed. Additionally there is data from the noncompete context that identify how these suppressed wages. We know they also interfere with the ability of competitors to hire workers that will increase productivity. How does that threaten the wages and how it undermines the future opportunities. One of the most important tools any worker has in the relationship corridor to the Bargaining Power is the threat of exit. Employers understand this even as the profits grow many have sought to artificially undermine the Worker Mobility and as a consequence they are not treated us well as they ought to be a bit in the labor market which they dont have the power. As i said before the results of the inquiry and how we move forward to the Consumer Protections but also antiworkerr practices. The last question earlier this week from texas justifying the testifying thebuy now pay latert took out was initially manageable until a variety of companies approved in the credit combined and was a College Student that took out the loan. Does that meaningfully assess the ability to pay. As it stands right now there is no way to verify how many loans consumers have across different providers and for many, consumers need only provide a payment form to verify the identity and to do a soft credit check that doesnt meaningfully affect the ability to pay. 72 reported a decline in the credit score and it seems the standards need strengthening. Thank you, mr. Chairman. It seems to me a lot of the innovations are designed in many cases to provide a service to people who seem to be mostly left out of existing Financial Products with respect to credit. Its disruptive to the incumbent plague years but it creates a whole new opportunity for the consumers. Could you share for us what is the best way to think about regulating to take the wage access how should we think about going about the regulations so we dont stifle innovation of these or the next that we havent thought of yet. I want to associate myself with your observations that i think the great promise is with respect to traditionally underserved consumers which again is the market works pretty well we have plenty of options, highquality options and the like. Its costly to make small loans theres a lot of costs involved and it potentially unlocks that by providing low cost options. My big concern is taking regulations that are very archaic which is a world of sort of pen and paper prototype computers to take the regulatory scheme that is already pretty creaky around the edges and doesnt work very well and try to pose that on the new economy i think could be a problem that isnt designed for that. The regulation can have costs but very few offsetting benefits and the issue we should be focusing on is in shoring we are protecting consumers so sometimes that means doing more aggressive enforcement and reliance on information promoting competition promoting innovation and the like. Just to be clear are you aware of data that suggests that the consumers who use the facilities tend to be younger, lower income and have a history of credit problems are they in fact the people who have a more difficult time . Theres some middleclass people that are doing it as a gimmick but the value is for lower income and younger traditionally excluded consumers. It becomes important that the consumers understand what it is they are getting themselves into. Are you aware of evidence regarding whether or not consumers understand the terms referring specifically to the products . 99 of the consumers that use the product is understood of the terms and conditions and this last weekend the consult todays surveys 94 of the consumers that use the products understood the terms and conditions. I think thats a very high mark of people that understand what the product to start about and what their obligations are and have a full understanding of the terms. I know there are some people that are concerned. They think about the transaction and typically there is no Interest Rate paid. The fee that is paid typically comes from the merchant who has plenty of incentives to pay the fee so i guess the risk to the consumer would be if you dont make a payment on time you could get hit with a late fee. So what do we know about how prevalent the late fees are and how many are hit with them and how big a percentage the income derives from late fees . What we know from in general in the Industry Standard stand 4 incur a late fee so we have a predominant 90 of those do not incur they paid on time and it is able to manage and fit their budget accordingly so thats why you are seeing the increase. As far as on the division of how the companies derive the revenue from around 85 to 87 of companies derive from the merchant fees there are others either a late fee or otherwise but 85 to 87 . Senator warren from massachusetts is recognized. Last month President Biden made the historic decision to cancel up to 20,000 in Student Loan Debt and this is going to deliver lifechanging relief for as many as 43 million its going to be nurses and Truck Drivers and nail technicians who were not able to finish their degrees so while families are breathing a sigh of relief, corporations that made billions of dollars off a broken student loan system are now laying new traps in a shamelessly lastditch effort to drive along their pockets. One of the Worlds Largest and worst loan servicers is now leading the way. According to reports, immediately after the cancellation was announced. Encouraging them to refinance their federal loans under the private lenders with a promise of lower Interest Rates. Your organization has a history of protecting consumers from student debt scams so i want to ask you lets say a borrower decides to take them up on their offer and refinances their federal loans with a refi tomorrow what would this mean for cancellation under President Bidens plan . If they refinance they will essentially be replacing the federal student loan with a private student loan because only federal Student Loans are eligible for cancellation. That means they may no longer be eligible for that cancellation thats a huge loss for those eligible but not yet in the fine print in the bottom of those emails. So they could be forfeiting ten to 20,000 worth of debt cancellations. In our words right after the president announced it on cancellation, they sent out notices to people who could be eligible, encouraging them to refinance. Ive sent a letter asking for more information, but it appears that instead of sending borrowers information to help them get the cancellation they may be entitled to they pushed borrowers to loans that could at best complicate their ability to get cancellations. Do they make more or less money if its borrowers get so there loans canceled . The future of the lending business depends on the ability to take the most creditworthy people with federal Student Loans and refinance them into private loans. Every borrower that is debtfree is the result more broadly the better the deal the federal government offers borrowers federal Student Loans with less opportunity to sell people its private loans. I want to underscore what you said. Every borrower that is debtfree is one lesson borrower to profit from. I think that is a fair summary. This is outrageous behavior and why i send letters to other loan servicers yesterday asking them what steps they are taking to ensure consumers receive timely and Accurate Information about the loans and eligibility for cancellations. By the way, this isnt the first time theyve been caught trying to take advantage of borrowers between 2009 and 2019 there were at least ten incidents where the corporate predecessors were accused of or find by federal and state regulators for actions that ripped off borrowers including steering into the rePayment Options that made it harder for them to pay back their loans. They are protected as they await the debt cancellation and i will continue fighting to make sure that happens what we used to look at the nonbank sector and we thought about it on the commercial sense and assetbacked securities there were some benefits for a lot of economic meltdowns weve seen a migration in the financial industry. The banks share the 91 to 2 share of Small Business loans and unsecured loans dropped by 10 and weve seen this in a whole host weve spent some time i think ive got to get more education on things like crypto but weve seen peer to Peer Networks and the payment space some of these things bring real benefits but i think we focus on not the challenges. How should we keep an eye on these new products recognizing a lot of consumers like them. But my concern is how do we make sure we are regarding the protection for the consumers in this nonregulated Banking Sector . Thank you for the question. We have the federal and state regulators and the oversight of market benefits. Theres more competition. Regulated entities have an expectation of what is allowed and permitted. Weve appreciated the inquiry and we look forward to seeing what research they found but we would also encourage them to supervise under various authority as i can get into in my testimony but we would encourage them to supervise each of these industries so that consumers are protected and that the regulated entities have a clear sense. I know there was some disagreement on my side of the aisle whether there were voluntary charters into some critique that would be almost regulation light. I think we may be able to revisit that because at least it sweeps the entities. I fear it doesnt give the clarity for the rest of the panel to address and consumers. What we are talking about theres three different ways and one is to enter into state agreements with transfer licenses for the ability on the Money Transfer they can enter into banks and partnerships. When they enter into the partnerships, they are overdraft and other things to angela and sure their own banking charter through other means. Theres been a three slow acceptance of other types of National Banks charters and others are asking to be in that overregulated space to fit the purpose of what they are trying to accomplish and we welcome the opportunity for the various different regulatory bodies to approve those so you can have a fullness and understanding of what the partnerships look like. Thank you for that question. Its a big problem. It only works on a National Basis as the chair man of the task force i think somewhat controversially we recommended it be given Charter Authority for the nonbank Financial Service institutions. It could work and i also fear if they will coopt the process to impose the burdens on them. You asked what frameworks apply and i suggest in most cases we have the frameworks where the products are credited and we shouldnt allow that they are dressed up in these terms bound up in the employment relationship. There is a lot of ancillary products and in affiliation. That might be another framework talking about the Consumer Protections to make the same kind of question about cyber protections in this area and the idea of this whole sector going without any framework of oversight i frankly dont think the hodgepodge regulatory system is going to meet the market. Thank you for your insight. With the chairman of several members of the committee the legislation would establish 36 with a goal of being eliminating predatory loans from the Consumer Credit markets they appear to be consumer friendly but in practice the predatory and exceed the 36 . Thank you for this question and your advocacy. Of those that use the tip model pricing can look very affordable and reach as high as traditional payday loans and others we havent necessarily talked about those that use the scheme to peddle highinterest loans. Banks are exempt and highcost t lenders have used this exemption to launder in order to evade state Interest Rate laws. This isnt a Partnership Like the Ranking Member was speaking about. The high cost lender has a predominant interest during the majority of the underwriting briefing. In the bipartisan review the fair credit act would protect consumers from these highinterest loans theyve been very popular in the pandemic and according to the Advisory Group 55 billion and buy now and pay later credit was extended in the United States and projecting an expansion of more than 100 billion by 2024. Which consumer Protection Laws apply to the buy now and pay later loans and which do not . Most should apply to buy now and pay later as its structured more and more like open ended credit with finance charges and mandatory arbitration agreements as it is commonly used by consumers of color the equal credit opportunity since many require or include authorization for payments to be automatically deducted the funds transfer act should apply for products that allow to consent to Debt Collection that the practices act should apply and finally federal regulators should supervise the buy now pay later so they are not engaging in unfair or deceptive acts and practices or unlawful discrimination. Having the buy now pay later Data Incorporated into the report does come isnt done in a standardized manner. They have their own the format format ofincorporating and usint data. It might not only have underwriting consequences but credit scoring consequences as well. The credit reports that have incorporated the day that i have lowered and illustrates the fit for buy now pay later. It isnt traditionally what fits into the system so this needs to be done thoughtfully to ensure consumers are protected. Senator van holland is recognized. Senator cortez masco is recognized. Thank you mr. Chair and to the panel members. They were followed by other financial adjustablerate mortgages so i do think its appropriate to be having this conversation today and appreciate the panel thats here for their comments so far ive been long concerned about the practice related to some i issued a report called the strategies to improve the franchise how can the promise of an independent franchise with low wages and questioning that. Thank you, senator. I appreciate your work in this space standing up for Small Businesses. Very often we see the opportunities target those that have been left behind by the labor market who are excluded from the hardfought Labor Protections disproportionately immigrants and people of color. The traditional opportunities havent provided they passed to Financial Success and so instead let me sell you on a purported entrepreneurial opportunity to own a Small Business to become a franchise. Instead the companies will trap workers where the workers dont have the ability to upset their own prices. They often say you owe us a franchisee and we are going to finance the fees for you and loan you the money to pay for the upfront cost. This can create a really vicious cycle of predatory debt and it ineffectively involuntary servitude. I appreciate your comment at the area that i would hope we get more information out to the franchisees. Let me jump to the provision and how its impacting we need more than 179,000. They are becoming more prevalent for the industries. They are infiltrating trucking, nursing, employees, social workers and into the medical field as well. This is a form of debt thats not only traps consumers but also hinders workplace mobility and exacerbates disparities. Any other things we should be doing in congress to address it if anything . Thank you. I just want to emphasize when it comes to immigrants nurses we see employers justify extraordinary debts and agreements by saying the worker entered into them voluntarily in order to have the visa sponsored. Of course its a fundamental tenant of the laws in the country that you cant sell your self into the indentured servitude. Its important we attack these as being unfair and illegal and also saying like in this area as so many others, forced arbitration is at the root of the problem. So many workers are trapped and their rights are violated even if as i said no court would ever enforce the provision that strapping them we are purporting to authorize Debt Collection. They cant do anything about that because the forced arbitration provision prevents them from going to court and may require them to pay the other side extraordinary costs. I know my time is up the consumers had no choice and thats why they are so detrimental. Thank you senator for the reference to what happened a dozen or so years ago and thanks to the witnesses i would like to submit the record whose former employee made her sign a trump putting her in debt for 5,500 to the employer after she resigned due to poor working conditions and the testimonies last week the stories describing their struggles with an employer driven debt and credit products as an important context. Questions are due tuesday september 20th. Theres 45 days to respond. At the hearing is adjourned. Thank you for joining us. [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations]