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EXAMINING OPPORTUNITIES AND CHALLENGES IN THE FINANCIAL TECHNOLOGY (‘‘FINTECH’’) MARKETPLACE HEARING BEFORE THE SUBCOMMITTEE ON FINANCIAL INSTITUTIONS AND CONSUMER CREDIT OF THE COMMITTEE ON FINANCIAL SERVICES U.S. HOUSE OF REPRESENTATIVES ONE HUNDRED FIFTEENTH CONGRESS SECOND SESSION JANUARY 30, 2018 Printed for the use of the Committee on Financial Services Serial No. 115–70 ( U.S. GOVERNMENT PUBLISHING OFFICE 31–326 PDF WASHINGTON : 2018 VerDate Mar 15 2010 10:49 Nov 21, 2018 Jkt 000000 PO 00000 Frm 00001 Fmt 5011 Sfmt 5011 G:\GPO PRINTING\DOCS\115TH HEARINGS - 2ND SESSION 2018\2018-01-30 FI FINTEC mcarroll on FSR431 with DISTILLER HOUSE COMMITTEE ON FINANCIAL SERVICES JEB HENSARLING, Texas, Chairman PATRICK T. MCHENRY, North Carolina, MAXINE WATERS, California, Ranking Vice Chairman Member PETER T. KING, New York CAROLYN B. MALONEY, New York EDWARD R. ROYCE, California NYDIA M. VELA´ ZQUEZ, New York FRANK D. LUCAS, Oklahoma BRAD SHERMAN, California STEVAN PEARCE, New Mexico GREGORY W. MEEKS, New York BILL POSEY, Florida MICHAEL E. CAPUANO, Massachusetts BLAINE LUETKEMEYER, Missouri WM. LACY CLAY, Missouri BILL HUIZENGA, Michigan STEPHEN F. LYNCH, Massachusetts SEAN P. DUFFY, Wisconsin DAVID SCOTT, Georgia STEVE STIVERS, Ohio AL GREEN, Texas RANDY HULTGREN, Illinois EMANUEL CLEAVER, Missouri DENNIS A. ROSS, Florida GWEN MOORE, Wisconsin ROBERT PITTENGER, North Carolina KEITH ELLISON, Minnesota ANN WAGNER, Missouri ED PERLMUTTER, Colorado ANDY BARR, Kentucky JAMES A. HIMES, Connecticut KEITH J. ROTHFUS, Pennsylvania BILL FOSTER, Illinois LUKE MESSER, Indiana DANIEL T. KILDEE, Michigan SCOTT TIPTON, Colorado JOHN K. DELANEY, Maryland ROGER WILLIAMS, Texas KYRSTEN SINEMA, Arizona BRUCE POLIQUIN, Maine JOYCE BEATTY, Ohio MIA LOVE, Utah DENNY HECK, Washington FRENCH HILL, Arkansas JUAN VARGAS, California TOM EMMER, Minnesota JOSH GOTTHEIMER, New Jersey LEE M. ZELDIN, New York VICENTE GONZALEZ, Texas DAVID A. TROTT, Michigan CHARLIE CRIST, Florida BARRY LOUDERMILK, Georgia RUBEN KIHUEN, Nevada ALEXANDER X. MOONEY, West Virginia THOMAS MACARTHUR, New Jersey WARREN DAVIDSON, Ohio TED BUDD, North Carolina DAVID KUSTOFF, Tennessee CLAUDIA TENNEY, New York TREY HOLLINGSWORTH, Indiana SHANNON MCGAHN, Staff Director (II) VerDate Mar 15 2010 10:49 Nov 21, 2018 Jkt 000000 PO 00000 Frm 00002 Fmt 5904 Sfmt 5904 G:\GPO PRINTING\DOCS\115TH HEARINGS - 2ND SESSION 2018\2018-01-30 FI FINTEC mcarroll on FSR431 with DISTILLER SUBCOMMITTEE ON FINANCIAL INSTITUTIONS AND CONSUMER CREDIT BLAINE LUETKEMEYER, Missouri, Chairman KEITH J. ROTHFUS, Pennsylvania, Vice WM. LACY CLAY, Missouri, Ranking Chairman Member EDWARD R. ROYCE, California CAROLYN B. MALONEY, New York FRANK D. LUCAS, Oklahoma GREGORY W. MEEKS, New York BILL POSEY, Florida DAVID SCOTT, Georgia DENNIS A. ROSS, Florida NYDIA M. VELA´ ZQUEZ, New York ROBERT PITTENGER, North Carolina AL GREEN, Texas ANDY BARR, Kentucky KEITH ELLISON, Minnesota SCOTT TIPTON, Colorado MICHAEL E. CAPUANO, Massachusetts ROGER WILLIAMS, Texas DENNY HECK, Washington MIA LOVE, Utah GWEN MOORE, Wisconsin DAVID A. TROTT, Michigan CHARLIE CRIST, Florida BARRY LOUDERMILK, Georgia DAVID KUSTOFF, Tennessee CLAUDIA TENNEY, New York (III) VerDate Mar 15 2010 10:49 Nov 21, 2018 Jkt 000000 PO 00000 Frm 00003 Fmt 5904 Sfmt 5904 G:\GPO PRINTING\DOCS\115TH HEARINGS - 2ND SESSION 2018\2018-01-30 FI FINTEC mcarroll on FSR431 with DISTILLER VerDate Mar 15 2010 10:49 Nov 21, 2018 Jkt 000000 PO 00000 Frm 00004 Fmt 5904 Sfmt 5904 G:\GPO PRINTING\DOCS\115TH HEARINGS - 2ND SESSION 2018\2018-01-30 FI FINTEC mcarroll on FSR431 with DISTILLER C O N T E N T S Page Hearing held on: January 30, 2018 .............................................................................................. 1 Appendix: January 30, 2018 .............................................................................................. 39 WITNESSES TUESDAY, JANUARY 30, 2018 Hoopes, Nathaniel, Executive Director, Marketplace Lending Association ........ 4 Knight, Brian, Director, Program on Financial Regulation and Senior Re- search Fellow, Mercatus Center, George Mason University ............................ 5 Levitin, Adam J., Professor of Law, Georgetown University Law Center .......... 10 Peters, Brian, Executive Director, Financial Innovation Now ............................. 7 Smith, Andrew, Partner, Covington and Burling, LLP ........................................ 9 APPENDIX Prepared statements: Hoopes, Nathaniel ............................................................................................ 40 Knight, Brian .................................................................................................... 52 Levitin, Adam J. ............................................................................................... 84 Peters, Brian ..................................................................................................... 108 Smith, Andrew .................................................................................................. 119 ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD Hollingsworth, Hon. Trey: Written statement from the Consumer Financial Data Rights Group ........ 130 Written statement from WebBank .................................................................. 134 Waters, Hon. Maxine: Written statement from the National Community Reinvestment Coali- tion ................................................................................................................. 139 Hoopes, Nathaniel: Responses to questions for the record from Representative Posey ............... 156 Knight, Brian: Responses to questions for the record from Representative Posey ............... 160 Levitin, Adam J.: Responses to questions for the record from Representative Posey ............... 163 Peters, Brian: Responses to questions for the record from Representative Posey ............... 165 Smith, Andrew: Responses to questions for the record from Representative Posey ............... 169 (V) VerDate Mar 15 2010 10:49 Nov 21, 2018 Jkt 000000 PO 00000 Frm 00005 Fmt 5904 Sfmt 5904 G:\GPO PRINTING\DOCS\115TH HEARINGS - 2ND SESSION 2018\2018-01-30 FI FINTEC mcarroll on FSR431 with DISTILLER VerDate Mar 15 2010 10:49 Nov 21, 2018 Jkt 000000 PO 00000 Frm 00006 Fmt 5904 Sfmt 5904 G:\GPO PRINTING\DOCS\115TH HEARINGS - 2ND SESSION 2018\2018-01-30 FI FINTEC mcarroll on FSR431 with DISTILLER EXAMINING OPPORTUNITIES AND CHALLENGES IN THE FINANCIAL TECHNOLOGY (‘‘FINTECH’’) MARKETPLACE Tuesday, January 30, 2018 U.S. HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON FINANCIAL INSTITUTIONS AND CONSUMER CREDIT, COMMITTEE ON FINANCIAL SERVICES, Washington, D.C. The subcommittee met, pursuant to notice, at 10:02 a.m., in room 2128, Rayburn House Office Building, Hon. Blaine Luetkemeyer [chairman of the subcommittee] presiding. Present: Representatives Luetkemeyer, Rothfus, Royce, Lucas, Posey, Ross, Pittenger, Barr, Tipton, Williams, Trott, Loudermilk, Kustoff, Tenney, Clay, Maloney, Meeks, Scott, Green, and Heck. Also present: Representatives Hensarling, Hollingsworth, Emmer, and Cleaver. Chairman LUETKEMEYER. The committee will come to order. Without objection, the Chair is authorized to require recess of the committee at any time. This hearing is entitled, ‘‘Examining Oppor- tunities and Challenges in the Financial Technology, or Fintech, Marketplace.’’ Before we begin, I would like to thank the witnesses for appear- ing today, I appreciate your participation and look forward to the discussion. I now recognize myself for 5 minutes for the purposes of an opening statement. From all the electronic payment in use, through blockchain, and crytpo-currencies, advances in technologies are changing the way financial markets operate and the way that consumers access cred- it. Use of these new technologies has proven to spur innovation that aids in the delivery of services and products to consumers and small businesses. These advancements come at a time when bank lending to borrowers with less than pristine credit, small busi- nesses, and startups seems to have stalled. According to a recent study by Deloitte, marketplace lenders, for instance, accounted for loan originations worth almost $40 billion over the last decade. Today, many online lenders have a technology to offer consumer and small business loans with better terms and conditions. An increasing role for fintech also shows the financial needs of Americans have changed. The rise of online banking and mobile payment technologies have revolutionized the way Americans inter- act with institutions and make financial decisions. (1) VerDate Mar 15 2010 10:49 Nov 21, 2018 Jkt 000000 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 G:\GPO PRINTING\DOCS\115TH HEARINGS - 2ND SESSION 2018\2018-01-30 FI FINTEC mcarroll on FSR431 with DISTILLER 2 While we should always advocate for innovation that helps the American people and the economy, we must also understand the implications this type of technical revolution can have on con- sumers and financial institutions. So my colleagues on this subcommittee have raised questions over both potential positives and negatives these types of lenders may have on underserved borrowers and communities. These are conversations that need to take place so we can have a holistic view of this diverse and growing marketplace. It is also important to spend time understanding regulatory re- gimes surrounding fintech, predominantly regulated by the States. Questions have recently been raised as to whether or not Federal laws that apply to similar products and companies, should apply to fintech.

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