WASHINGTON, D.C. – On Tuesday, September 13, 2022, Financial Technology Association Chief Executive Officer Penny Lee testified before the Senate Banking Committee hearing on new consumer financial products and their impacts on workers. Below are excerpts from Ms. Lee’s written testimony, a full copy of which may be found here.
On fintech innovation and rising adoption:
“Fintech adoption has surged over the past few years. Nine in ten consumers use financial technology to manage their finances because it saves them time (93 percent) and money (78 percent), helps them make better financial decisions (73 percent), and reduces financial stress (71 percent).
“Fintech innovation allows a single mom to buy groceries for her family that better fits her budget, a young person to manage his cash flow responsibly, or a small business owner the ability to access the capital she needs to expand operations.
“These advances are coming at a critical time for the American economy…Americans are more likely to report they are worse off financially than they were a year ago and express concerns about affording everyday essentials from groceries to gas, according to polling conducted by Morning Consult on behalf of the Financial Technology Association.
On consumer use of Buy Now Pay Later:
“A new generation of fintech innovators are offering consumers alternative payment options that can reduce debt and alleviate budget stress. Americans, on average, pay approximately $1,000 per year in interest on revolving credit card debt, and interest rates on all credit products are rising given the current economic environment. It is no surprise then that consumers are looking for potential alternatives and that industry is competing to serve those consumers better.
“Fintech innovators in the broadly defined BNPL space offer consumers many tailored and flexible payment options, including direct payments, pay after delivery, and installment plans that typically involve equal payments over a six to eight-week post-purchase period. BNPL firms typically charge consumers zero interest or low fees for installment payment plans and perform only a soft credit pull on consumers.
“Additionally, BNPL firms generally charge lower late fees in the case of delinquency or default and pursue no further recourse. A consumer who defaults on a BNPL product cannot use the service again, which prevents the risk of spiraling debt or compounding fees.
“Surveys indicate that BNPL users prefer the payment option for a number of reasons, including that: they are typically lower cost, charging little or no interest or fees; they are transparent, helping consumers better understand – and hence control – their finances; they typically help users budget and, as a result, help manage cash flow; they are typically flexible and offer more relief when consumers find themselves unable to pay; and they typically result in less debt, and repayment takes place over shorter terms.
“BNPL products are structured to have payment terms requiring consumers to pay for a purchase in weeks or a few months. By allowing a consumer to pay for a purchase with smaller payments over a discrete period, BNPL products can reduce cash flow stress that might otherwise present challenges for a consumer awaiting a monthly paycheck.
On existing BNPL regulations:
“BNPL products are subject to consumer protection regulations, and FTA members are committed to informing regulatory frameworks that safeguard consumers. BNPL products are subject to key consumer protection laws and regulations, including anti-money laundering, fair lending, debt collection, privacy, fair treatment of customers, and electronic fund transfers. They also are subject to similar state consumer protection laws.
On consumer use of EWA:
“Earned Wage Access (EWA) is another key area of innovation that offers consumers flexibility through on-demand and earlier access to their earned wages, helping them make timely payments on everyday expenses, avoid overdrafting their bank accounts, and manage short-term financial shocks. EWA allows an employee to access funds based on earned wages that have not yet been deposited into their account, helping them smooth out cash flow between payroll cycles, which can be as infrequent as biweekly or monthly.
“EWA services are non-recourse and never charge interest. This means that consumers have no legal obligation to repay an advance, and providers cannot take legal action to collect payments. Customers can decide not to repay their advance at any time by revoking the authorization related to their linked bank account or changing the destination of their direct deposit.16 There is never a credit pull or credit reporting associated with this service. Failure to repay an advance does not result in interest charges or rollover payments, though it usually does limit access to additional EWA advances until the earlier advance is repaid. Importantly, since EWA products are not credit and are simply early access to an employee’s earned wages they are not subject to TILA and state lending laws.”
“On behalf of FTA’smember companies, I appreciate the opportunity to engage with the committee today. As detailed, fintech innovation, including BNPL and EWA solutions, are driving competition and choice for consumers and small businesses that result in lower costs and better financial outcomes. Yet, we strongly believe that balanced and thoughtful regulation is key to long-term success for all involved stakeholders, including providers, consumers, and merchants utilizing new payment solutions. We look forward to helping to inform this important process.”
The Financial Technology Association (FTA) represents industry leaders shaping the future of finance. We champion the power of technology-centered financial services and advocate for the modernization of financial regulation to support inclusion and responsible innovation.