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Stephen F. Lynch: Am I unmuted?
Yes, sir. Okay, thank you.

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Welcome everyone. Great to have
our witnesses with us and also

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the members. And thank you to
staff, Katrina and Clement and

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the rest of the staff for
setting this up. I really do

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appreciate it. We have a few
just housekeeping measures that

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I have to go through here for a
minute before we get to the get

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to the actual hearing. This
taskforce will come to order.

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That is me being in the gavel.
Yeah, but without objection, the

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chair is authorized to declare a
recess of the task force at any

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time. Without objection members
of the full committee not on

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this task was now authorized to
participate in today's hearing.

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Members are reminded to keep
their video function on at all

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times even when they are not
recognized by the Chair. Members

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are also reminded that they are
responsible for muting and

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annually unmuting themselves and
to mute themselves after they

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are finished speaking,
consistent with the regulations

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accompany House resolution 965.
Staff will only mute members and

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witnesses as appropriate when
not recognized to avoid

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inadvertent background noise.
Members are also reminded that

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all house rules relating to
order and decorum apply to this

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remote hearing. This hearing is
entitled license to bank

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examining the legal framework
governing who can lend and

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process payments in the FinTech
age. I will now recognize myself

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five minutes to give an opening
statement. In the past year and

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a half this taskforce has
witnessed the many ways in which

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banking is changing. With just
my cell phone I can deposit a

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cheque apply for a loan, sending
money to a friend and buy

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cryptocurrency. The financial
services world once dominated by

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brick and mortar institutions,
is now filled with so called

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disruptors who are responding to
evolving consumer preference,

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and revolutionising the way that
we interact with our own money.

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The implication of these changes
are clear, banking is becoming

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less centralized. Consumers have
access to a wider array of

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services than they once did.
Technology and tech companies

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are playing an ever increasing
role in our finances, and our

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laws and regulations are
struggling to be kind, to keep

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pace.

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And in an attempt to address
these facts regulators have been

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proposing new charters and
reviving and re imagining

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existing ones. In 2016, the
Comptroller of the Currency

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proposed a special purpose
National Bank Charter for non

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depository FinTech firms.
Earlier this year, Acting

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Comptroller Brian Brooks
announced plans for another

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special purpose charter, this
time for payment companies

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amounting amounting to what he
has described as a national

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version of state money
transmitter license. A

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additionally in March of this
year, the FDIC approved Nelnet

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and square for deposit FDIC
deposit insurance the first time

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they've approved a new
industrial loan charter

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applicants since 2008. These
actions have been met with

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significant controversy. The OCC
FinTech charter is the subject

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of litigation right now over
their authority to grant bank

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banking charters to non
depository institutions. The

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Southern District of New York
has sided with the New York

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Department of Financial Services
in that case. Meanwhile, the

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plan payment charter is expected
to face similar legal

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challenges. And both banking
industry associations and

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consumer groups have signed a
letter to the FDIC and

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opposition to the approval of
the new ILC applications.

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Supporters of these new charters
argue they promote financial

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innovation and access to capital
while eliminating redundant

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licensing requirements across
the states. Opponents however,

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worry about firms using these
charters as a way to skirt

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important consumer protection
laws and to avoid additional

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regulatory oversight at both the
state and federal level. Both

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the charters and the ILC
approval raised questions about

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the traditional separation of
banking and commerce and the

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entry of technology firms with
their move fast and break things

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approach into the financial
services arena, which has become

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rule bound as a result of
congressional responses to a

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series of major national
financial crises. Over the past

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century. The current legal
questions and regulatory

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conflicts should be addressed by
Congress. Our regulators in the

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courts mediating this disputes
have been forced to resort to

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19th century texts to interpret
the intentions of Congress from

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a time Then when these issues
were far less apparent, banking

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has changed. We can't afford to
allow outdated laws to create

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opportunities for regulatory
arbitrage, and additional

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consumer harm. We need to update
our regulatory framework to

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provide clarity, opportunity for
innovation, and most

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importantly, safeguard the
consumer and the American

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taxpayer chartering authority is
the cornerstone of this system.

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Our charters determine which
firms can engage in banking, and

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which regulators will ensure
their safety and soundness. This

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conversation is as important as
any in financial services could

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be right now. And this
discussion could not be more

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timely. This morning, we'll hear
from a distinguished panel of

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experts on what these proposed
changes might mean for

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regulating the business of
banking, and the implications of

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changing the process for
granting Special Purpose

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National Bank charters. I look
forward to today. Today's

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discussion. The Chair now
recognizes the ranking member,

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my friend from Minnesota, Mr.
Emmer for four minutes for an

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opening statement.

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Tom Emmer: Thank you, Mr. Chair.
Thank you for convening this

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important hearing today. Before
I go into the content of the

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hearing, I want to acknowledge
what is likely our last fintech

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taskforce hearing of this
Congress. I'd like to thank the

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Chair and the past leadership of
French Hill on this task force

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for producing thoughtful,
nonpartisan conversations about

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the emerging technologies that
regulators and Congress are

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grappling with. No matter the
outcome of November's election.

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I hope it's become apparent on
both sides, the multitude of

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policy questions and topics in
the area of fintech. The growth

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of these technologies and the
considerations for Congress and

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regulators will only continue to
grow. That's why next congress,

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this committee should create a
financial technology

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subcommittee. In order to
provide proper attention to this

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expanding and exciting area. A
subcommittee would allow for

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greater focus on the details of
many of the topics we've

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discussed, as a task force, the
consequences of Congress's

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action or inaction on these
topics standard greatly

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influenced the economy as well
as the location of the next

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great technological innovation,
like the internet. As a body,

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we've already fallen behind on
our knowledge and understanding

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of technology issues, that we
don't catch up on fintech. These

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innovation innovations will pass
us by. Today, we close out our

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hearings with our attention
toward the regulator that has

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likely been the most forward
leaning and supportive of new

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technologies that could build a
more open and free financial

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system and equip millions of
Americans previous previously

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excluded with the tools to build
a credit and prosperous

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financial future. The OCC under
the leadership of Acting

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Comptroller Brian Brooks, has
undertaken tremendous efforts to

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clearly spell out the regulatory
environment for emerging

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technologies and ensure their
domestic development, rather

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than allowing for more
departures to countries that

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have provided more clear rules
of the roll. Many have weighed

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in after the prospect of a
payments charter became news. As

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Congress and regulators tackle
issues with our changing

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financial system. It is
important and prudent to

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consider the implications
involved and make sure consumers

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are protected and our financial
institutions remain strong and

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secure. At the same time, a
charter under the OCC is by no

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means a license to operate free
from regulation. It's not even

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regulation light, as some of the
testimony today will portray it.

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In fact, it poses many
responsibilities and duties to

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adhere to safe business
practices and disclose

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information in an effort to
ensure market stability. The OCC

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has long held and will continue
to ensure that their regulated

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institutions operate in a safe
and sound manner, provide fair

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access to financial services and
treat customers fairly uncertain

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that as details begin to emerge
and payment charters are

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granted, the OCC will continue
to fulfill their mission. In

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addition, regulatory certainty
is a goal that Acting

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Comptroller Brooks and I share.
That's why last week I

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introduced the securities
clarity Act, which would clarify

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securities law in a
technologically agnostic way and

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allow for the distribution of an
underlying assets that that is

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in fact a commodity. With regard
to blockchain technologies, the

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securities clarity Act would
allow for the distribution of a

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token following the registered
securities offering so long as

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actors play by the rules of the
road. They deserve the

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assurances that regulators will
not continue to cause

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uncertainty and will in fact
support innovation in America. I

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am grateful for the support of
Darren Soto, a co chair of the

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blockchain caucus like myself
and Ro Khanna a member of the

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caucus and California member
whose district has directly seen

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the benefits of these new
technologies. It's through

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practical, nonpartisan,
nonpartisan solutions like this,

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that this taskforce can be most
effective during this era. going

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into the next Congress. Again,
I'd like to thank Chairman Lynch

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for convening this hearing and
leading the task force and I

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hope we will continue to work
together to better understand

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financial technologies and the
ways Congress can support and

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foster innovation in America. I
yield back.

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Stephen F. Lynch: The gentleman
yields back. Thank you, Mr.

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Obama. I understand that Mr.
McHenry was was going to be

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afforded an opportunity for an
opening statement. Is he on

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board because I did not see him
in the in the grid. Okay, we

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don't see Mr. McHenry. Mr. Amer
would you like to reassign that

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minute remaining on the minority
side, to any of your members or

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consume it yourself?

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Tom Emmer: I no, at this point,
Mr. Lynch, I'll yield back.

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Stephen F. Lynch: Okay, I thank
the gentleman. At this point,

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I'd like to welcome our
witnesses. So today, we will

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hear from several distinguished
witnesses who are great

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authorities in this area. Raul
Kareo, who is the Policy Counsel

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for the Demand Progress
Education Fund. I'm gonna hold

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off one second, can I ask all
members to mute themselves? I'm

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getting some feedback here.
Okay, I'll begin again. Raul

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Kareo is the Policy Counsel for
the Demand Progress Education

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Fund, and also a fellow for the
Americans for Financial Reform

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Education Fund, where he helped
develop a regulatory response to

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the Facebook Libra project, and
other emerging financial

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technologies. Raul has also
served as special counsel to the

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enforcement director at the
Consumer Financial Protection

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Bureau, and work in the
executive office of then

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California Attorney General
Kamala Harris. Welcome. Mr.

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Everett K. Sands is the Chief
Executive Officer at lender

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history, a fin tech CDFI, and
small business and commercial

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real estate lender. Mr. Sands
has more than 20 years of

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experience in lending at
national and community banks. He

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is also a board member for the
Penn Institute for Urban

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Research, which informs urban
decision making and public

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policy on issues of sustainable
urban growth and development.

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Thank you also for being here.
Arthur E. Wilmarth Jr. is

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Professor Emeritus of law at
George Washington University Law

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School. Professor Wilmarth is
the author of the forthcoming

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book, well taming the mega
banks, why we need a new Glass

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Steagall Act. And he's also co
editor of the panic of 2008

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causes consequences and
implications for reform. In

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2010, he was a consultant to the
Financial Crisis Inquiry

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Commission, and as a member of
the International Advisory Board

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of the Journal of banking,
welcome, Professor Wilmarth.

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Brian Knight is director of the
innovation and Governance

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00:12:54.780 --> 00:12:59.850
Program at the Makeda center.
Mr. Nice research focuses on

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financial regulation, including
the role of federalism and

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fintech regulation, and the use
of digital assets for financial

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transactions. Prior to joining,
choose me prior to joining

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Mercatus, Mr. Knight worked for
the Milken Institute where he

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was in charge of the FinTech and
capital access programs. Thank

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you as well for being here. I
witnesses are reminded that your

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oral testimony will be limited
to five minutes. A chime will go

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off at the end of your time, and
I'll ask that you respect the

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members and other witnesses time
by wrapping up your oral

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00:13:32.490 --> 00:13:35.490
testimony at that point. And
without objection, your written

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statement will be made part of
the record. Mr. Korea, you are

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now recognized for five minutes
to give an oral presentation of

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your testimony. Welcome.

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Raul Carrillo: Thank you, Chair
Lynch, Ranking Member Mr.

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Distinguished members of the
task force for inviting me to

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testify today. My name is Raul
Carrillo. And I'm policy

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councils with the man progress
education fund in the fellow the

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Americans for Financial Reform
Education Fund. Demand

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progresses, more than 2 million
affiliated activists fight to

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keep the democratic character of
the internet contest

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concentrated corporate power and
hold government accountable. AFR

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is a coalition of more than 200
consumer civil rights, investor,

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00:14:13.830 --> 00:14:18.450
retiree, labor, business and
faith based groups. Well,

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00:14:18.450 --> 00:14:21.300
assessing new bank like
technologies, policymakers

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00:14:21.300 --> 00:14:24.930
should look at possible benefits
to individual users, but also to

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00:14:24.930 --> 00:14:27.750
risk to the integrity of the
financial system, consumer

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00:14:27.750 --> 00:14:31.470
protections and our civil
rights. They should also guard

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00:14:31.470 --> 00:14:34.230
against developments that will
entrench the power of big tech

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and further erode our democracy.
We urge Congress to adopt a

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00:14:37.980 --> 00:14:41.280
bright line precautionary
approach to digital bank like

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00:14:41.280 --> 00:14:44.910
activities. What industry calls
innovation is often easily

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00:14:44.910 --> 00:14:48.960
mapped onto an existing product
or service. In some cases, there

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00:14:48.960 --> 00:14:52.890
is something new. In those
cases, policymakers should ask

241
00:14:52.890 --> 00:14:56.130
why technological development is
being proposed. Treating

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00:14:56.130 --> 00:14:59.550
innovation as an unqualified
good, not only leads us to

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00:14:59.550 --> 00:15:03.120
ignore it equity but sustainable
innovation precaution shouldn't

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00:15:03.120 --> 00:15:06.990
be the norm. Just it is just as
it should be in food and drug

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00:15:06.990 --> 00:15:11.310
regulation. The OCC and FDIC is
current approach encourages

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00:15:11.310 --> 00:15:15.150
rentenbank predatory lending. In
Madden, the court followed a

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00:15:15.150 --> 00:15:18.420
tradition dating back to the
American Revolution, that states

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00:15:18.420 --> 00:15:21.540
may limit the interest rates
charged by non bank companies,

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00:15:21.780 --> 00:15:24.750
as well as a general rule that
consumer protections are not

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00:15:24.750 --> 00:15:27.870
preempted unless they
significantly interfere with the

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00:15:27.870 --> 00:15:31.230
bank's partnering on the loan.
Together the so called mat and

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00:15:31.230 --> 00:15:35.670
fix rules in the OCC so called
to Linda rule would allow non

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00:15:35.670 --> 00:15:39.240
bank companies to charge rates
as high as they would like, even

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00:15:39.240 --> 00:15:41.670
if they're being partners would
merely put their name on the

255
00:15:41.670 --> 00:15:45.390
paperwork. Similarly, special
charters would allow non bank

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00:15:45.390 --> 00:15:48.720
companies to exercise special
privileges without special

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00:15:48.720 --> 00:15:52.560
regulation during the pandemic
and depression should be moving

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00:15:52.560 --> 00:15:54.840
in exactly the opposite
direction, including by

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00:15:54.840 --> 00:15:58.530
instituting a 36% rate cap,
functionally expanding the

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00:15:58.530 --> 00:16:00.990
Military Lending Act to cover
assault.

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00:16:02.370 --> 00:16:04.920
Although fintech firms make many
promises with respect to

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00:16:04.920 --> 00:16:09.810
financial acute inclusion, we
advise healthy skepticism. Too

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00:16:09.810 --> 00:16:13.710
often new tech yields predatory
inclusion companies offer needed

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00:16:13.710 --> 00:16:17.580
services to certain classes of
users only for those benefits to

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00:16:17.580 --> 00:16:21.450
evaporate or become eliminated
in the long term. The use of all

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00:16:21.450 --> 00:16:25.920
data AI Predictive analytics is
already enabled price

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00:16:25.920 --> 00:16:28.890
discrimination. complex
algorithms also make it

268
00:16:28.890 --> 00:16:32.670
difficult to know what factors
an algorithm has used and how it

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00:16:32.670 --> 00:16:35.970
is used them. This can lead to
steering in digital redlining,

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00:16:36.150 --> 00:16:39.120
and generally shield violators
of the Equal Credit Opportunity

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00:16:39.120 --> 00:16:44.070
Act or Fair Housing Act. From
claims of disparate impact. We

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00:16:44.070 --> 00:16:46.860
strongly agree with Professor
Wilmarth that Wall Street and

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00:16:46.860 --> 00:16:50.370
Silicon Valley are irresponsibly
integrating banking and

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00:16:50.370 --> 00:16:54.330
commerce. Congress should close
the ILC loophole and generally

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00:16:54.330 --> 00:16:57.360
separate the ownership of
financial institutions from

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00:16:57.360 --> 00:17:00.810
large tech companies. We are
especially concerned by dominant

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00:17:00.810 --> 00:17:04.200
tech platforms, recent
encroachment into payments, most

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00:17:04.200 --> 00:17:07.920
notably via the proposed
Facebook libre project. Payments

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00:17:07.920 --> 00:17:10.860
data allow platforms to more
easily engage in predatory

280
00:17:10.860 --> 00:17:15.720
pricing. Self deal spying rivals
next adjacent markets in

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00:17:15.720 --> 00:17:19.620
generally accumulate political
power. Mobile payment platforms

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00:17:19.620 --> 00:17:22.740
also avoided most banking
regulation constituting law

283
00:17:22.740 --> 00:17:26.430
professors den RA and Christine
Benz we can call shadow payment

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00:17:26.430 --> 00:17:29.670
platforms. Big tech should not
be storing funds without

285
00:17:29.670 --> 00:17:33.780
appropriate protections. But the
US currently lacks a general law

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00:17:33.780 --> 00:17:37.800
of deposit that would facilitate
sufficient oversight, Congress

287
00:17:37.800 --> 00:17:41.550
must step up. We also urge
Congress to shift the burden of

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00:17:41.550 --> 00:17:44.700
privacy protection away from
consumers who cannot

289
00:17:44.700 --> 00:17:48.450
meaningfully consent to
surveillance and toward big

290
00:17:48.450 --> 00:17:51.990
tech. Congress should establish
a list of permissible purposes

291
00:17:51.990 --> 00:17:56.580
for data collection, and ban all
others. We also urge Congress to

292
00:17:56.580 --> 00:17:59.670
protect cash as an option. We
shouldn't supplant money that

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00:17:59.670 --> 00:18:03.300
doesn't track us with money that
necessarily creates a more

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00:18:03.300 --> 00:18:07.980
detailed picture of our intimate
political, religious, familial

295
00:18:08.010 --> 00:18:11.220
and romantic lives. It's just as
Thurgood Marshall warned in the

296
00:18:11.220 --> 00:18:16.230
70s. Come evolve banking also
leads to easier access to data,

297
00:18:16.350 --> 00:18:19.890
which will corporations and law
enforcement agencies may use

298
00:18:19.890 --> 00:18:24.150
inappropriately. This taskforce
should more deeply consider the

299
00:18:24.150 --> 00:18:27.240
social and political
consequences of fintech. We

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00:18:27.240 --> 00:18:30.600
strongly support innovation in
the public interest and for that

301
00:18:30.600 --> 00:18:34.590
reason, call for privacy
respecting public options for

302
00:18:34.590 --> 00:18:37.860
real time payments, safe
deposits, remittances and other

303
00:18:37.860 --> 00:18:42.120
basic services provided by the
Fed treasury and USPS

304
00:18:42.240 --> 00:18:45.570
institutions we can more readily
hold accountable compared to big

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00:18:45.570 --> 00:18:47.580
finance and big tech. Thank you.

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00:18:50.060 --> 00:18:54.860
Stephen F. Lynch: Thank you. Mr.
Sands, you are now recognized

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00:18:54.860 --> 00:18:58.820
for a five minute presentation
of your written testimony. Thank

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00:18:58.820 --> 00:19:21.590
you. Mr. Mr. Sands, you're on
mute right now. Can you unmute?

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00:19:21.980 --> 00:19:25.310
Here we go. Okay. Mr. Sands, you
are on mute there. So why don't

310
00:19:25.310 --> 00:19:26.720
you take it from the top. Okay.

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00:19:27.260 --> 00:19:29.030
Everett K. Sands: Thank you very
much. Appreciate it.

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00:19:29.030 --> 00:19:30.830
Stephen F. Lynch: Thank you sir.
Thank you. Thank you.

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00:19:31.730 --> 00:19:33.800
Everett K. Sands: Taskforce
chair Lynch, Task Force Ranking

314
00:19:33.800 --> 00:19:37.070
Member Mr. Chairwoman waters,
Ranking Member McHenry and

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00:19:37.070 --> 00:19:39.680
distinguished members of the
task force. It it's an honor for

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00:19:39.680 --> 00:19:42.680
me to appear before you today.
My name is Everett Kay sands and

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00:19:42.680 --> 00:19:45.830
I appreciate the committee's
interest in finance technology,

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00:19:46.160 --> 00:19:49.310
and this opportunity to provide
insights and information. My

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00:19:49.310 --> 00:19:52.130
testimony will address several
of the task force's areas of

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00:19:52.130 --> 00:19:55.700
interest and will focus on
lending generally, and on small

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00:19:55.700 --> 00:19:58.730
business lending. So many of my
comments are also applicable to

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00:19:58.730 --> 00:20:01.610
other areas of lending As
they're closely tied in terms of

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00:20:01.610 --> 00:20:05.060
credit parameters from consumer
perspective, and origination

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00:20:05.060 --> 00:20:09.230
activity from FinTech lenders,
that single unified perspective

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00:20:09.440 --> 00:20:13.460
that ties together my testimony,
this in lending, there are good

326
00:20:13.520 --> 00:20:16.670
and responsible actors, and
there are bad and unscrupulous

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00:20:16.670 --> 00:20:19.940
actors. And it is my belief and
experience that the best

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00:20:19.940 --> 00:20:22.910
protection against bad actors is
to take actions designed to

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00:20:22.910 --> 00:20:26.480
incentivize more good actors to
come into the field, making

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00:20:26.480 --> 00:20:29.720
their offerings more available
and crowding out bad actors.

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00:20:30.020 --> 00:20:33.320
fintechs can have a constructive
role in lending if their rates

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00:20:33.380 --> 00:20:36.290
and product offerings are
responsible. Today, small

333
00:20:36.290 --> 00:20:40.100
businesses and consequently the
United States are in crisis. The

334
00:20:40.100 --> 00:20:43.670
stakes for expanding Responsible
Lending are enormous. An urgent

335
00:20:43.670 --> 00:20:47.330
need for action in this regard
cannot be overstated. I have

336
00:20:47.330 --> 00:20:49.520
more than 20 years of experience
in the banking and lending

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00:20:49.520 --> 00:20:53.270
fields. Prior to starting the
industry. I was both part of

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00:20:53.270 --> 00:20:56.120
National and Community Banking.
I've served as a board member

339
00:20:56.120 --> 00:20:58.940
and an executive. And I've led
high growth business units and

340
00:20:58.940 --> 00:21:02.270
close more than $3 billion in
transactions. Businesses I've

341
00:21:02.270 --> 00:21:08.900
led have been regulated by the
CDFI Fund, FDIC FHA, HSA fhlb

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00:21:08.990 --> 00:21:14.420
OCC OTs, SBA, VA and several
state regulators. Today on the

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00:21:14.420 --> 00:21:17.720
CEO of industry, will industry
as a minority on in technology

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00:21:17.720 --> 00:21:22.370
enabled CDFI. We're dedicated to
providing economic opportunities

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00:21:22.370 --> 00:21:25.400
to underserved urban and rural
small business borrowers and

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00:21:25.400 --> 00:21:29.120
their communities. Industry is
also a signatory to the small

347
00:21:29.120 --> 00:21:31.700
business borrowers Bill of
Rights, which are guidelines set

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00:21:31.700 --> 00:21:35.270
by the responsible business
lending coalition. As a hybrid

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00:21:35.270 --> 00:21:37.580
of a FinTech lender, and a
community bank lender, she

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00:21:37.610 --> 00:21:41.810
combines the best of FinTech
efficiency, scalability, and

351
00:21:41.810 --> 00:21:44.150
seamless user experience with
the best of traditional lending,

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00:21:44.450 --> 00:21:47.570
low cost of acquisition, low
cost of funds and strong risk

353
00:21:47.570 --> 00:21:51.110
management. Currently, industry
is playing a very active role

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00:21:51.110 --> 00:21:54.260
and the COVID-19 small business
recovery effort. To briefly

355
00:21:54.260 --> 00:21:56.750
summarize, the industry has
originated processed and

356
00:21:56.750 --> 00:22:00.680
approved more than 180 million
and PPP loans to more than 3500

357
00:22:00.710 --> 00:22:03.710
businesses in the 12 states
where as they gave a temporary

358
00:22:03.710 --> 00:22:07.310
authorization to Lin. We've also
utilized our technology platform

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00:22:07.310 --> 00:22:10.280
to process more than 50,000
Small Business Cares Act related

360
00:22:10.280 --> 00:22:13.670
grant applications for the state
of Pennsylvania. And we'll fund

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00:22:13.700 --> 00:22:17.780
approximately 10,000 of those
grants totaling 190 million, and

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00:22:17.780 --> 00:22:21.170
up to an additional 50 million
for several other counties. All

363
00:22:21.170 --> 00:22:25.160
in partnership with the PA CDFI
network. I'll focus the

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00:22:25.160 --> 00:22:27.230
remainder of my remarks on
responsible in the in the

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00:22:27.230 --> 00:22:30.440
context areas of the committee
is exploring. It's my view that

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00:22:30.440 --> 00:22:33.680
incentivizing and expanding
responsible lending is the best

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00:22:33.680 --> 00:22:36.230
protection against predatory
lending. Importantly, the

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00:22:36.230 --> 00:22:38.450
federal government should
empower and harness systems and

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00:22:38.450 --> 00:22:41.660
authorities it already has
Congress to use these systems to

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00:22:41.660 --> 00:22:45.080
create compelling incentives for
fintechs to choose to operate

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00:22:45.080 --> 00:22:47.810
within a regulated framework and
conduct lending activities in a

372
00:22:47.810 --> 00:22:50.930
responsible manner. I'd like to
introduce one such incidents

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00:22:50.930 --> 00:22:53.780
oriented solution today, and it
begins we'll make it more

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00:22:53.780 --> 00:22:56.660
effective use of the CDFI Fund.
That solution has three

375
00:22:56.660 --> 00:22:59.810
components. First, create
compelling incentives to be a

376
00:22:59.810 --> 00:23:04.100
CDFI automatic approval for all
of SBAS products, membership to

377
00:23:04.100 --> 00:23:07.760
the Federal Reserve, and ability
to lend nationally, as well as

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00:23:07.760 --> 00:23:12.560
easier access to capital from
banks. Second, raise the bar for

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00:23:12.560 --> 00:23:16.040
qualifying to be a CDFI. For
example, interest rate ceiling

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00:23:16.040 --> 00:23:20.000
and 36% APR standard as payment
cycles included no more than two

381
00:23:20.000 --> 00:23:22.100
payments a month and additional
disclosures and

382
00:23:22.100 --> 00:23:25.490
accountabilities. Third, empower
the CDFI Fund to monitor

383
00:23:25.820 --> 00:23:29.060
compliance with additional
requirements. The membership

384
00:23:29.090 --> 00:23:32.090
asked about OCC special
charters. Though we believe in

385
00:23:32.090 --> 00:23:35.150
an enhanced role for the CDFI
Fund as a preferred solution. It

386
00:23:35.150 --> 00:23:38.930
can be adapted for the OTC but
payment and lending each

387
00:23:38.930 --> 00:23:41.840
requires significant adjustment
to regulation. And we suggest

388
00:23:41.840 --> 00:23:45.080
the OCC to focus on payments
first, as new technology like

389
00:23:45.080 --> 00:23:48.110
Bitcoin, blockchain and
cryptocurrency gain traction.

390
00:23:48.620 --> 00:23:51.710
The taskforce asked about
industrial loan charters despite

391
00:23:51.710 --> 00:23:54.950
theoretical risks of IOC to the
banking system. Historically,

392
00:23:54.950 --> 00:23:57.260
the mixing of banking and
commerce have not had a negative

393
00:23:57.260 --> 00:24:00.680
impact on the consumer and the
Deposit Insurance Fund. We think

394
00:24:00.710 --> 00:24:04.250
IoT is a viable solution.
However, the parent company must

395
00:24:04.250 --> 00:24:07.970
be subject to the bank holding
act. Finally, I'd like to

396
00:24:08.000 --> 00:24:11.240
emphasize the importance of
annual oversight. Whatever path

397
00:24:11.240 --> 00:24:14.360
is taken moving forward, the
evolution and speed of the

398
00:24:14.360 --> 00:24:17.990
FinTech industry demands that
the regulatory authorities be

399
00:24:17.990 --> 00:24:20.690
empowered and mandated to
conduct annual reviews of the

400
00:24:20.690 --> 00:24:23.690
requirements in order to ensure
accountability and transparency.

401
00:24:24.080 --> 00:24:26.600
Thank you for the opportunity to
be here today.

402
00:24:29.150 --> 00:24:32.750
Stephen F. Lynch: Thank you, Mr.
Sands. Next up, Professor

403
00:24:32.750 --> 00:24:35.540
Wilmarth you're now recognized
for five minutes for

404
00:24:35.570 --> 00:24:37.820
presentation of your written
testimony.

405
00:24:39.490 --> 00:24:41.440
Arthur E. Wilmarth: Thank you,
Chairman Lynch Ranking Member

406
00:24:41.440 --> 00:24:44.710
ever and distinguished members
of the committee and Task Force.

407
00:24:45.820 --> 00:24:48.790
I'm My testimony today
criticizes recent attempts by

408
00:24:48.790 --> 00:24:53.890
the OCC and the FDIC to confer
banking powers and privileges on

409
00:24:53.890 --> 00:24:56.920
non banks and commercial firms
without requiring those

410
00:24:56.920 --> 00:25:00.340
companies to comply with the
regulations that govern banks

411
00:25:00.340 --> 00:25:04.660
and bank holding companies. The
OCC and FDIC as initiatives are

412
00:25:04.660 --> 00:25:07.870
unlawful and contrary to the
public interest. They represent

413
00:25:07.870 --> 00:25:11.740
a dangerous form of regulatory
arbitrage that allows non banks

414
00:25:11.740 --> 00:25:15.430
and commercial firms to evade
fundamental policies embodied in

415
00:25:15.430 --> 00:25:19.360
our federal statutory framework
for banking institutions. I urge

416
00:25:19.360 --> 00:25:23.170
Congress to use its legislative
and oversight powers to block

417
00:25:23.170 --> 00:25:26.680
these initiatives or persuade
the agencies to withdraw them.

418
00:25:27.040 --> 00:25:32.140
I'm going to focus my oral
testimony on the OCC is

419
00:25:32.140 --> 00:25:36.460
nondepository FinTech charter
and the FDIC is proposed ILC

420
00:25:36.460 --> 00:25:41.380
rule. The National Bank Act, the
Federal Reserve Act, and the

421
00:25:41.380 --> 00:25:45.880
Federal Deposit Insurance Act
prohibits the OCC from granting

422
00:25:45.940 --> 00:25:49.090
National Bank charters to
financial firms that do not

423
00:25:49.090 --> 00:25:53.650
accept deposits. And I point the
committee to 12 USC 222. In

424
00:25:53.650 --> 00:25:57.070
particular, the only national
banks that are permitted to

425
00:25:57.070 --> 00:26:00.370
operate without deposit
insurance or non depository

426
00:26:00.520 --> 00:26:03.820
Special Purpose trust companies.
And those companies were

427
00:26:03.820 --> 00:26:06.790
specifically authorized by a
special amendment and a very

428
00:26:06.790 --> 00:26:12.370
narrow amendment, adopted by
Congress in 1978. The OCC has no

429
00:26:12.370 --> 00:26:16.720
other authority to allow to
charter institutions that don't

430
00:26:16.720 --> 00:26:21.040
accept deposits. bank deposits
play a very vital role in our

431
00:26:21.040 --> 00:26:26.980
monetary system. And as Gerald
Corrigan observed 20 years ago,

432
00:26:28.390 --> 00:26:31.600
depository institutions serve as
a transmission bell for the

433
00:26:31.600 --> 00:26:35.440
nation's monetary policy
depository institutions have a

434
00:26:35.440 --> 00:26:38.650
very privileged relationship
with the Fed, and they receive

435
00:26:38.650 --> 00:26:41.830
very beneficial services from
the Fed including including the

436
00:26:42.190 --> 00:26:47.920
discount window loans, fed
payment, services fed settlement

437
00:26:47.920 --> 00:26:51.370
and custody services. Fedwire,
for example, guarantees

438
00:26:51.400 --> 00:26:56.590
immediate final payment among
financial institutions, no non

439
00:26:56.590 --> 00:27:02.320
depositories can get access to
these services. The OCCs non

440
00:27:02.320 --> 00:27:06.370
depository fintech charter would
create massive conflicts with

441
00:27:06.370 --> 00:27:10.990
the feds design. Those firms if
they got charters could claim

442
00:27:10.990 --> 00:27:14.020
that they have the automatic
right to become Fed members and

443
00:27:14.020 --> 00:27:17.560
to get all the benefits that
depository institutions get from

444
00:27:17.560 --> 00:27:22.420
the Fed. So for example, non
depository FinTech banks could

445
00:27:22.420 --> 00:27:26.800
get discount window loans. That
is completely contrary to

446
00:27:26.890 --> 00:27:30.520
Section 13. Three of the Federal
Reserve Act which puts very very

447
00:27:30.520 --> 00:27:33.550
strict restrictions on the
ability of the Fed to give any

448
00:27:33.550 --> 00:27:40.210
loans to non depository firms.
Also, big tech firms could get

449
00:27:40.240 --> 00:27:42.940
very significant influence on
our monetary and economic

450
00:27:42.940 --> 00:27:46.270
policies, they would have the
right if they were admitted as

451
00:27:46.270 --> 00:27:50.950
Fed members to vote for Fed
Reserve, I'm sorry fed regional

452
00:27:51.010 --> 00:27:54.700
Reserve Bank presidents who
participate on the FOMC so they

453
00:27:54.700 --> 00:27:57.880
would be able to directly
influence monetary policy

454
00:27:57.880 --> 00:28:03.910
decisions. Now let's turn for a
moment to the FDIC is IOC

455
00:28:04.030 --> 00:28:08.050
proposed rule. This would allow
any type of commercial company

456
00:28:08.260 --> 00:28:12.700
to acquire FDIC insured
depository institutions known as

457
00:28:12.700 --> 00:28:16.540
ILC, who basically can conduct
very close to a full service

458
00:28:16.540 --> 00:28:21.490
banking business. This would be
even a greater threat to the

459
00:28:21.520 --> 00:28:24.670
current policy, which has been
long established of separating

460
00:28:24.670 --> 00:28:28.540
banking and commerce. It would
give them direct access to all

461
00:28:28.540 --> 00:28:29.680
of that services.

462
00:28:31.090 --> 00:28:33.490
And of course, to the very
important federal deposit

463
00:28:33.490 --> 00:28:38.560
insurance part of the safety
net. So we can see that that

464
00:28:38.950 --> 00:28:44.200
these OCC FinTech charters and
in the FDIC is proposed ILC roll

465
00:28:44.620 --> 00:28:47.080
would essentially allow
commercial firms and especially

466
00:28:47.080 --> 00:28:50.890
big tech firms to get the
advantages of all that the

467
00:28:50.890 --> 00:28:54.220
federal safety net offers. This
would give them huge competitive

468
00:28:54.220 --> 00:28:57.940
advantages over smaller
commercial firms that could not

469
00:28:58.000 --> 00:29:02.710
afford to acquire FinTech
charters, or I LCS. This is

470
00:29:02.710 --> 00:29:06.760
certainly completely contrary to
the bank holding company act and

471
00:29:06.760 --> 00:29:10.810
our long history of separating
banking and commerce. And it

472
00:29:10.810 --> 00:29:15.880
would, in my view, pose great
systemic dangers, the federal

473
00:29:15.880 --> 00:29:18.160
government and bailed out
several very large corporate

474
00:29:18.160 --> 00:29:21.610
owners of IOCs. During the
financial crisis, as I explained

475
00:29:21.610 --> 00:29:25.270
in my statement, we can
anticipate that the same problem

476
00:29:25.270 --> 00:29:28.510
would occur again, if big tech
firms are allowed to acquire

477
00:29:28.660 --> 00:29:32.500
banking institutions with direct
access to the the safety net but

478
00:29:32.500 --> 00:29:35.710
without complying with the bank
holding company act and many

479
00:29:35.710 --> 00:29:39.880
other statutes. I'd be happy to
discuss this further in response

480
00:29:39.880 --> 00:29:41.560
to questions. Thank you very
much.

481
00:29:44.020 --> 00:29:46.630
Stephen F. Lynch: Thank you,
Professor. Mr. Knight, you are

482
00:29:46.630 --> 00:29:49.990
now recognized for five minutes
for an oral presentation of your

483
00:29:49.990 --> 00:29:59.110
written testimony. I think you
need to unmute your apology.

484
00:29:59.410 --> 00:30:00.250
Brian Knight: Apologize for
that.

485
00:30:00.910 --> 00:30:01.480
Stephen F. Lynch: That's okay.

486
00:30:02.470 --> 00:30:04.780
Brian Knight: Hello, Chairman
Lynch, Ranking Member Emmer, and

487
00:30:04.780 --> 00:30:07.870
members of the FinTech Task
Force. I congratulate you all on

488
00:30:07.870 --> 00:30:10.060
your leadership and thank you
for the opportunity to testify

489
00:30:10.060 --> 00:30:13.060
today. My name is Brian Knight.
I'm the director of the program

490
00:30:13.060 --> 00:30:15.430
on innovation and governance as
senior research fellow at the

491
00:30:15.430 --> 00:30:18.970
Mercatus. Center. And I
expressed today on my own and do

492
00:30:18.970 --> 00:30:22.750
not necessarily reflect those of
my employer. The goal of this

493
00:30:22.750 --> 00:30:25.060
hearing is to examine the rules
governing which firms are

494
00:30:25.060 --> 00:30:27.880
allowed to lend and process
payments in the age of fintech.

495
00:30:28.240 --> 00:30:31.960
That's an excellent question is
both timely and relevant. I

496
00:30:31.960 --> 00:30:35.920
submit for your consideration
four key points. First, that

497
00:30:35.920 --> 00:30:38.710
technological and economic
reality have overtaken existing

498
00:30:38.710 --> 00:30:41.320
law leading to an overly
burdensome regulatory

499
00:30:41.320 --> 00:30:44.500
environment that harms
Americans. Second, the both the

500
00:30:44.500 --> 00:30:48.100
OCC and the states have shown an
admirable willingness to attempt

501
00:30:48.100 --> 00:30:51.130
reform, but their ability to get
it right is limited under

502
00:30:51.130 --> 00:30:57.010
existing law. Third, Congress
can and should reform the law to

503
00:30:57.010 --> 00:31:00.160
allow non depository lenders and
money transmitters, subject to

504
00:31:00.160 --> 00:31:04.210
appropriate requirements operate
on a nationwide scale, and

505
00:31:04.210 --> 00:31:07.390
forth. Finally, this does not
mean however, that a federal

506
00:31:07.390 --> 00:31:10.690
license or charter should be the
only option. Rather, Congress

507
00:31:10.720 --> 00:31:13.360
should enable state licensed or
chartered non depository

508
00:31:13.360 --> 00:31:17.110
entities to compete nationally.
non bank FinTech firms have

509
00:31:17.110 --> 00:31:19.780
become significant competitors
in the financial services

510
00:31:19.780 --> 00:31:23.020
market. And Americans have
embraced these services due to a

511
00:31:23.170 --> 00:31:27.220
variety of factors, including
cost, convenience, speed and

512
00:31:27.220 --> 00:31:30.400
availability. While these firms
may take advantage of cutting

513
00:31:30.400 --> 00:31:33.400
edge technology, they're still
subjected to a regulatory system

514
00:31:33.400 --> 00:31:37.210
that did not contemplate them.
Contrary to some assertions,

515
00:31:37.240 --> 00:31:40.870
FinTech firms are not
unregulated, or even necessarily

516
00:31:40.870 --> 00:31:44.590
less regulated than traditional
banks on a line of business

517
00:31:44.590 --> 00:31:48.340
basis. In fact, these firms
frequently find themselves

518
00:31:48.340 --> 00:31:51.370
subject to a cumbersome state by
state regulation that places

519
00:31:51.370 --> 00:31:55.720
them at a disadvantage. For
example, under federal law, a

520
00:31:55.720 --> 00:31:58.990
nationally chartered bank or
FDIC insured state chartered

521
00:31:58.990 --> 00:32:02.530
bank can lend nationwide on the
basis of its home state law

522
00:32:02.530 --> 00:32:06.130
governing interest. Conversely,
FinTech firms must obtain

523
00:32:06.130 --> 00:32:10.060
lending licenses and every state
they operate in are subject to

524
00:32:10.060 --> 00:32:13.990
laws of each state regarding the
definition and control of

525
00:32:13.990 --> 00:32:17.710
interest. Likewise, national
banks are not required to obtain

526
00:32:17.710 --> 00:32:20.170
a state money transmitter
license and state money

527
00:32:20.170 --> 00:32:23.620
transmitter licenses generally
exempt state chartered banks.

528
00:32:24.070 --> 00:32:26.500
Conversely, non bank money
transmitters have to get

529
00:32:26.500 --> 00:32:31.120
licensed in every state. And
finally, while banks can

530
00:32:31.120 --> 00:32:33.790
generally access the Federal
Reserve's payment system to help

531
00:32:33.790 --> 00:32:37.300
transmit payments, non bank
FinTech money transmitters

532
00:32:37.300 --> 00:32:41.860
cannot. This cumbersome and
uneven regulation is frequently

533
00:32:41.860 --> 00:32:45.760
unjustified and can result in
higher costs, reduced service

534
00:32:46.300 --> 00:32:50.410
and competitive inequality.
Recognizing this mismatch

535
00:32:50.410 --> 00:32:52.780
between the regulatory
environment and economic and

536
00:32:52.780 --> 00:32:55.780
technological reality, both
federal and state regulators

537
00:32:55.780 --> 00:32:58.270
have shown an admirable
willingness to innovate. But the

538
00:32:58.270 --> 00:33:00.370
efficacy of those efforts is
questionable due to legal

539
00:33:00.370 --> 00:33:03.790
constraints. Beginning the Obama
administration, the Office of

540
00:33:03.790 --> 00:33:05.710
the Comptroller of the Currency
announced a plan to offer

541
00:33:05.710 --> 00:33:08.560
special purpose National Bank
charters to non depository

542
00:33:08.560 --> 00:33:12.400
lenders and money transmitters.
In response, state regulators

543
00:33:12.400 --> 00:33:15.850
announced a host of regulatory
reforms aimed at lowering the

544
00:33:15.970 --> 00:33:20.740
burden of state regulation, as
well as suing the OCC. While the

545
00:33:20.740 --> 00:33:23.500
SEC plan is imperfect, it does
arguably represent the best

546
00:33:23.500 --> 00:33:27.160
regulatory option currently
available. However, it's not at

547
00:33:27.160 --> 00:33:30.400
all clear that the legal powers
and burdens that come with being

548
00:33:30.400 --> 00:33:33.280
a national bank are needed or
appropriate for non depository

549
00:33:33.280 --> 00:33:37.750
entities that all the legal
powers and burdens likewise,

550
00:33:37.870 --> 00:33:40.210
while the state's resorting to
litigation to stop the OCC

551
00:33:40.210 --> 00:33:43.240
charter is regrettable. It's
also understandable. Under

552
00:33:43.240 --> 00:33:45.730
current law, a state cannot
offer a charter or license

553
00:33:45.730 --> 00:33:48.700
comparable to the OCC FinTech
charter, even if it wanted to,

554
00:33:49.180 --> 00:33:52.000
because of the lack of in
federal enabling legislation

555
00:33:52.030 --> 00:33:55.660
like that enjoyed by state
charter passwords. So what

556
00:33:55.660 --> 00:33:59.290
should Congress do? Consciously
encourage competition by

557
00:33:59.290 --> 00:34:01.390
aligning regulation with
technological and economic

558
00:34:01.390 --> 00:34:04.630
reality? Non depository
institutions that offer credit

559
00:34:04.660 --> 00:34:07.510
or money transmission services
nationwide should be able to do

560
00:34:07.510 --> 00:34:10.810
so without being placed under an
undue regulatory disadvantage.

561
00:34:11.980 --> 00:34:15.190
This could include Congress
making clear that both states

562
00:34:15.220 --> 00:34:17.920
and the federal government can
authorize firms, whether through

563
00:34:17.920 --> 00:34:21.190
a special purpose charter or a
license to lender facilitate

564
00:34:21.190 --> 00:34:24.280
payments with relevant authority
comparable to their banking

565
00:34:24.280 --> 00:34:28.720
competitors. Critically, any
requirements or limitations

566
00:34:28.720 --> 00:34:31.780
should be properly calibrated to
the risks created by the actual

567
00:34:31.780 --> 00:34:36.070
products, services and business
models, rather than apply simply

568
00:34:36.070 --> 00:34:39.940
because they apply to depository
institutions. The exact contours

569
00:34:39.940 --> 00:34:42.070
of what these rules should look
like remain to be determined,

570
00:34:42.490 --> 00:34:44.050
and there are important
questions that need to be

571
00:34:44.050 --> 00:34:46.720
answered. But first, we should
acknowledge that the current

572
00:34:46.720 --> 00:34:49.660
regulatory regime is outdated
and should be modernized.

573
00:34:49.990 --> 00:34:52.450
Congress should take advantage
of its unique ability to create

574
00:34:52.450 --> 00:34:55.600
an environment conducive to
innovation and competition that

575
00:34:55.600 --> 00:34:58.810
benefits the American people.
Thank you again for the

576
00:34:58.810 --> 00:35:01.540
opportunity to testify. and I
look forward to your questions.

577
00:35:03.850 --> 00:35:06.460
Stephen F. Lynch: Thank you very
much, Mr. Knight. At this point,

578
00:35:06.460 --> 00:35:11.830
I'd like to yield myself for
five minutes of questioning. I

579
00:35:11.830 --> 00:35:15.580
think together taken together
your testimony of all the

580
00:35:15.580 --> 00:35:20.860
witnesses, it really lays out
what what the problem is. And,

581
00:35:21.550 --> 00:35:25.570
you know, when we look at the
traditional barrier between

582
00:35:25.600 --> 00:35:29.890
banking and commerce, it has
served us well, in the past that

583
00:35:29.890 --> 00:35:36.250
his when you think about what we
the special privileges we give

584
00:35:36.250 --> 00:35:40.000
to banks, and I know the
professor mentioned the discount

585
00:35:40.000 --> 00:35:47.650
window. And you know, we've
we've, we've taken the bailing

586
00:35:47.650 --> 00:35:52.720
out banks, because we see them
so important to our our economy.

587
00:35:56.800 --> 00:36:02.860
I think that that also with with
FDIC insurance, we've actually,

588
00:36:04.780 --> 00:36:08.530
we've actually got an interest
on behalf of the, of the tax the

589
00:36:08.530 --> 00:36:15.100
American taxpayer, to preserve
the the stability of banks. Now

590
00:36:15.100 --> 00:36:20.170
we have the suggestion and look,
I understand that Fintech is

591
00:36:20.170 --> 00:36:23.170
responding to consumer
preferences, right. I have two

592
00:36:23.170 --> 00:36:26.260
girls that are that are a
college age. And I don't believe

593
00:36:26.260 --> 00:36:28.030
either one of them has ever
stepped foot in a bank.

594
00:36:28.300 --> 00:36:31.000
Everything is, you know,
everything is remote. Everything

595
00:36:31.000 --> 00:36:34.960
is mobile banking. So I get that
the model is changing and the

596
00:36:34.960 --> 00:36:41.230
regulations are indeed outdated.
But the question is, what do we

597
00:36:41.230 --> 00:36:46.270
do to fix that problem in a way
that that preserves the

598
00:36:46.510 --> 00:36:51.790
protections for consumers? For
the American taxpayer? You know,

599
00:36:51.790 --> 00:36:57.640
I think that Professor Wilmarth
and and and Raul, Mr. Kareo, you

600
00:36:57.640 --> 00:37:02.110
both spoke to that issue.
Regarding the separation of

601
00:37:02.140 --> 00:37:06.670
commerce from from traditional
banking. Could you could you

602
00:37:06.670 --> 00:37:11.980
talk a little bit about, you
know, the not just the dangers

603
00:37:12.010 --> 00:37:16.450
of commingling those two
activities? But But could you

604
00:37:16.450 --> 00:37:20.770
also suggest what a solution
might look like? Mr. Korea, you

605
00:37:20.770 --> 00:37:24.670
mentioned, you know, privacy
and, and the size of some of

606
00:37:24.670 --> 00:37:27.340
the, you know, if you look at
Tech, you look at these massive

607
00:37:27.340 --> 00:37:34.480
firms. I mean, I see, you know,
too big to fail fintechs in the,

608
00:37:35.350 --> 00:37:38.950
in the future, in a big, big
way. And I'm just very, very

609
00:37:38.950 --> 00:37:42.910
nervous about seeing that
concentration of power that we

610
00:37:42.910 --> 00:37:48.190
see in the tech world,
transmitted into the banking

611
00:37:48.190 --> 00:37:51.250
world. That's that's a very real
concern that I have. So could

612
00:37:51.250 --> 00:37:53.680
you. Could you take a crack at
that. Thank you.

613
00:37:53.680 --> 00:37:56.960
Raul Carrillo: Thank you very
much for your question, Chair

614
00:37:56.960 --> 00:38:00.890
Lynch. So I also share your
concerns about eventually

615
00:38:00.890 --> 00:38:03.950
needing to bail out with
Facebook or an Amazon are facing

616
00:38:03.950 --> 00:38:07.580
public pressure to do so if we
continue to go down this road.

617
00:38:08.060 --> 00:38:11.780
And Professor Wilmarth research
is very much highlighted that

618
00:38:12.110 --> 00:38:15.620
financial institutions that are
owned by commercial companies

619
00:38:15.800 --> 00:38:20.510
tend to make risky bets are
engaged in imprudent activities

620
00:38:20.540 --> 00:38:24.950
on behalf of the parent company.
Now, I would also say that the

621
00:38:24.950 --> 00:38:28.130
added dimension here involves
economic and political power in

622
00:38:28.130 --> 00:38:31.100
our society. I'm somewhat
disappointed that none of the

623
00:38:31.100 --> 00:38:35.690
other panelists addressed big
data, or mass surveillance, we

624
00:38:35.690 --> 00:38:38.270
have to consider that in this
new age of banking. It's not

625
00:38:38.270 --> 00:38:40.610
just about extracting money,
it's about extracting

626
00:38:40.610 --> 00:38:44.450
information about people in my
response, in addition to

627
00:38:44.930 --> 00:38:48.050
suggesting that there shouldn't
be further barriers, but

628
00:38:48.140 --> 00:38:50.840
provided by Congress and
regulators between big tech and

629
00:38:50.840 --> 00:38:54.380
bio finance is to create public
options, which will introduce

630
00:38:54.380 --> 00:38:58.190
competitive pressure into the
space and help keep big tech and

631
00:38:58.190 --> 00:39:02.060
high finance honest in terms of
building out this

632
00:39:02.480 --> 00:39:04.940
understandably, necessary
infrastructure. Thank you.

633
00:39:05.660 --> 00:39:07.220
Stephen F. Lynch: Thank you.
Professor Wilmarth.

634
00:39:09.110 --> 00:39:12.080
Arthur E. Wilmarth: Thank you,
Mr. Chairman. I think that

635
00:39:12.080 --> 00:39:16.190
you're exactly right, that if we
allow big tech to acquire banks,

636
00:39:16.310 --> 00:39:19.850
and we can expect that if that
happens, they will be very large

637
00:39:19.850 --> 00:39:23.630
banks, the pressure would be
unavoidable and inevitable that

638
00:39:23.660 --> 00:39:27.260
if any problem came, the federal
government would bail out the

639
00:39:27.260 --> 00:39:31.250
entire institution. That's
exactly what happened to what

640
00:39:31.280 --> 00:39:34.010
the so called Shadow Bank
Financial conglomerates during

641
00:39:34.010 --> 00:39:38.750
the financial crisis. I would I
would point to the task force's

642
00:39:38.750 --> 00:39:41.660
attention to the Wirecard
debacle that has just occurred

643
00:39:41.660 --> 00:39:45.890
in Germany. Wirecard actually
controlled a bank. And what was

644
00:39:45.890 --> 00:39:48.410
also very interesting as they
were trying to acquire Deutsche

645
00:39:48.410 --> 00:39:52.070
Bank shortly before they
collapsed. Imagine if Wirecard

646
00:39:52.070 --> 00:39:54.830
had controlled Deutsche Bank
before its accounting scandal

647
00:39:54.830 --> 00:39:58.370
was revealed. Again, there was
no there was no regulation at

648
00:39:58.370 --> 00:40:01.550
the holding company level. I
think the lesson of history is

649
00:40:01.550 --> 00:40:04.970
that you need consolidated
effective supervision at the

650
00:40:04.970 --> 00:40:07.790
holding company level. And I
very much questioned whether

651
00:40:07.790 --> 00:40:12.470
that's possible for a major tech
bank conglomerate. If I could

652
00:40:12.470 --> 00:40:17.030
just make one suggestion. No one
has shown in my opinion that all

653
00:40:17.030 --> 00:40:19.880
these services cannot be
obtained by banks through proper

654
00:40:19.880 --> 00:40:22.760
contracts with proper
supervision by the federal

655
00:40:22.760 --> 00:40:26.150
regulators. I think that proper
is the proper approach is to

656
00:40:26.150 --> 00:40:29.870
make sure that banks enter into
contracts when needed to get the

657
00:40:29.870 --> 00:40:32.780
technology they need to serve
their customers. But those

658
00:40:32.780 --> 00:40:36.110
contracts should be carefully
supervised by the regulators. I

659
00:40:36.110 --> 00:40:40.700
do not see that putting the the,
the banks into the hands of big

660
00:40:40.700 --> 00:40:44.720
tech would cause anything but
major problems and I think the

661
00:40:44.720 --> 00:40:48.200
result in conglomerates would be
completely uncontrollable, by

662
00:40:48.200 --> 00:40:51.410
both regulators and I'm afraid
even perhaps by Congress.

663
00:40:52.730 --> 00:40:54.590
Stephen F. Lynch: Thank you very
much. I see that my time has

664
00:40:54.590 --> 00:40:57.860
expired. The Chair now
recognizes the ranking member,

665
00:40:57.860 --> 00:41:00.110
Mr. Emmer, for five minutes for
questions.

666
00:41:01.190 --> 00:41:04.220
Tom Emmer: Thank you, Mr. Chair
to get thank you for holding

667
00:41:04.220 --> 00:41:08.180
this hearing. Mr. Knight. under
this administration, we've seen

668
00:41:08.180 --> 00:41:11.150
a lot of forward progress in
terms of regulators

669
00:41:11.360 --> 00:41:15.530
understanding technology and
fostering innovation. What areas

670
00:41:15.530 --> 00:41:19.040
do you think regulators should
be doing more work to understand

671
00:41:19.160 --> 00:41:22.760
and to ensure clear and
consistent regulation?

672
00:41:25.310 --> 00:41:28.220
Brian Knight: Thank you,
Representative Emmer. So I

673
00:41:28.220 --> 00:41:31.490
believe that the areas that
regulators should be focusing

674
00:41:31.490 --> 00:41:34.640
more on is one and unsurprising
given the topic of this hearing

675
00:41:35.150 --> 00:41:38.780
the implications of technology,
because while the application of

676
00:41:38.780 --> 00:41:41.720
technology and financial
services is not new, we are in a

677
00:41:41.720 --> 00:41:44.810
period of very high
technological innovation and

678
00:41:44.810 --> 00:41:48.860
therefore, be it within the
traditional banking system. Non

679
00:41:48.860 --> 00:41:51.560
banking, financial firms are
emerging startups and new

680
00:41:51.560 --> 00:41:57.020
competitors. The application of
a host of technologies like AI

681
00:41:57.020 --> 00:42:00.950
and big data was mentioned
earlier. cryptocurrencies and

682
00:42:00.950 --> 00:42:06.470
that sort of ledger system are
all emerging, and really need to

683
00:42:06.470 --> 00:42:09.230
be well understood by the
regulator so that they can do

684
00:42:09.230 --> 00:42:12.950
their job appropriately, and
neither fall asleep at the wheel

685
00:42:12.980 --> 00:42:14.270
or unduly panic.

686
00:42:16.940 --> 00:42:18.800
Tom Emmer: Have you been
following the litigation with

687
00:42:18.800 --> 00:42:25.250
the SEC litigation, including
kik and telegram cases? And what

688
00:42:25.250 --> 00:42:29.060
do you make of Commissioner
purses proposed Safe Harbor and

689
00:42:29.060 --> 00:42:32.210
expressed concerns regarding the
telegram enforcement action?

690
00:42:35.060 --> 00:42:36.650
Brian Knight: Sir, I will
confess that I have not followed

691
00:42:36.650 --> 00:42:41.000
that as closely as my thought I
should have. I will say, let me

692
00:42:41.000 --> 00:42:41.150
do

693
00:42:41.150 --> 00:42:44.210
Tom Emmer: This, Mr. Knight,
I'll give you it so I Hester

694
00:42:44.240 --> 00:42:49.010
Perse, said, quote, enforcement
actions can be instructive to

695
00:42:49.010 --> 00:42:52.790
people other than the wrongdoer,
but are not an appropriate

696
00:42:52.790 --> 00:42:57.500
mechanism to create new law, or
regulatory integrity demands

697
00:42:57.500 --> 00:43:00.800
that enforcement actions be
premised on a violation of a

698
00:43:00.800 --> 00:43:04.730
clearly articulated statute or
rule? Hopefully that helps.

699
00:43:07.160 --> 00:43:11.630
Brian Knight: Sir, Pester as per
usual, absolutely right. We we

700
00:43:11.630 --> 00:43:14.720
do not want regulation by
enforcement, the concept of

701
00:43:14.720 --> 00:43:18.350
justice and frankly, efficiency
and effectiveness indicate that

702
00:43:18.350 --> 00:43:21.980
we should have clearly laid down
rules before we're going to

703
00:43:22.520 --> 00:43:25.940
bring an enforcement action and
punish someone for a violation.

704
00:43:26.390 --> 00:43:29.360
That's, I think, a core
component of our concept of

705
00:43:29.360 --> 00:43:29.870
justice.

706
00:43:32.760 --> 00:43:36.270
Tom Emmer: Thank you. What do
you recommend, Mr. Knight? What

707
00:43:36.270 --> 00:43:42.960
do you recommend Congress do to
following the task force work?

708
00:43:42.990 --> 00:43:45.870
Should a stronger focus be
placed on these technologies?

709
00:43:45.870 --> 00:43:50.190
And are there any short term as
say, one or two year priorities

710
00:43:50.190 --> 00:43:51.360
that you can identify?

711
00:43:53.760 --> 00:43:55.800
Brian Knight: Thanks, sir, I
absolutely believe that Congress

712
00:43:55.800 --> 00:43:58.440
should continue to monitor and
in fact, increase its interest

713
00:43:58.440 --> 00:44:01.290
in these topics because they're
not going away. And they cut to

714
00:44:01.290 --> 00:44:04.770
an essential component of a
functioning life, which is the

715
00:44:04.770 --> 00:44:07.530
ability to access financial
services. That is a key

716
00:44:07.530 --> 00:44:11.610
component. In terms of short
term goals. As I mentioned

717
00:44:11.610 --> 00:44:14.670
earlier, I think that we really
should consider how we can

718
00:44:14.670 --> 00:44:19.080
modernize the ability for firms
to operate on an interstate

719
00:44:19.080 --> 00:44:23.640
basis, either within the banking
system with the caveat that

720
00:44:23.640 --> 00:44:26.550
there is a debate about just
whether or not banking is

721
00:44:26.550 --> 00:44:30.330
inherently involving
depositories, or outside of the

722
00:44:30.330 --> 00:44:34.950
banking system, where Congress
can give the necessary powers

723
00:44:34.980 --> 00:44:38.700
but not be bound by the
interlocking laws that have

724
00:44:38.700 --> 00:44:42.510
developed over time with regard
to banks to allow non banks to

725
00:44:42.510 --> 00:44:46.170
compete, that competition will
benefit customers. It will help

726
00:44:46.170 --> 00:44:49.140
keep all the participants
honest, because it will give

727
00:44:49.140 --> 00:44:52.920
consumers more options so that
they can walk away from a

728
00:44:52.950 --> 00:44:56.340
service provider who is not
treating them well. It may also

729
00:44:56.340 --> 00:45:00.240
help lower moral hazard to the
extent that we are not full risk

730
00:45:00.240 --> 00:45:04.410
to engage in a federally insured
depository environment for all

731
00:45:04.410 --> 00:45:05.160
transactions.

732
00:45:05.850 --> 00:45:11.340
Tom Emmer: So this is focusing
in one particular area. But

733
00:45:11.340 --> 00:45:16.320
would you agree that to resolve
uncertainty in quite frankly, a

734
00:45:16.320 --> 00:45:19.740
patchwork of different
regulation and laws, that, for

735
00:45:19.740 --> 00:45:24.570
instance, the OCC suggesting
that there should be some type

736
00:45:24.570 --> 00:45:28.830
of national license for money
transmitters? And we've actually

737
00:45:28.830 --> 00:45:32.190
had a bill along these lines?
Would you agree that's one of

738
00:45:32.190 --> 00:45:34.470
those things that could bring
more certainty and clarity to

739
00:45:34.470 --> 00:45:35.760
the marketplace?

740
00:45:37.980 --> 00:45:41.700
Brian Knight: Absolutely. And in
addition, in addition to the OCC

741
00:45:41.700 --> 00:45:45.420
providing a license or a special
purpose charter, you could also

742
00:45:45.420 --> 00:45:48.360
enable like you would do with
banks, state licensed my

743
00:45:48.360 --> 00:45:51.900
transmitters to more effectively
compete interstate to allow to

744
00:45:51.900 --> 00:45:55.590
maintain a dual financial and
market preserving Federalist

745
00:45:55.620 --> 00:45:56.160
system.

746
00:45:56.970 --> 00:46:00.450
Tom Emmer: Excellent. Thank you,
Mr. Chair. I see my time has run

747
00:46:00.450 --> 00:46:01.710
out. I yield back.

748
00:46:01.710 --> 00:46:06.580
Stephen F. Lynch: The gentleman
yields Patrina, would you want

749
00:46:06.580 --> 00:46:09.220
to handle the order of
questions? I'm not sure who's

750
00:46:09.220 --> 00:46:09.790
next.

751
00:46:15.990 --> 00:46:19.050
Patrina: Yes, sir. Mr. Hill,
will be next.

752
00:46:25.440 --> 00:46:29.130
French Hill: Well, thank you,
Mr. Chairman. I must say I want

753
00:46:29.130 --> 00:46:33.360
to echo the comments of my good
friend, Tom Emmer. That one of

754
00:46:33.360 --> 00:46:37.140
the real highlights of this
Congress was the decision by

755
00:46:37.440 --> 00:46:41.190
Maxine Waters and Patrick
McHenry to form our two task

756
00:46:41.190 --> 00:46:45.720
forces on FinTech and AI, in
particular this year, and the

757
00:46:45.720 --> 00:46:52.500
pandemic where legislative work
has become much more modest. The

758
00:46:52.500 --> 00:46:55.320
work here will lay the
groundwork for tremendous

759
00:46:55.320 --> 00:46:58.860
efforts, I think, for both our
state regulators, our federal

760
00:46:58.860 --> 00:47:02.190
regulators, and our
congressional policymakers

761
00:47:02.190 --> 00:47:07.440
working with this administration
and the incoming administration

762
00:47:07.440 --> 00:47:11.880
via Trump or Biden, to continue
to prepare America to be a

763
00:47:11.880 --> 00:47:18.600
leader in FinTech. And we've I
appreciate the Treasury's 2017

764
00:47:19.950 --> 00:47:24.240
survey and analysis on all these
issues that we're talking about

765
00:47:24.240 --> 00:47:27.960
the day. And it really made for
a more educated group of members

766
00:47:27.960 --> 00:47:33.090
of Congress on both sides of the
aisle to work on these important

767
00:47:33.090 --> 00:47:36.180
topics. So thanks for having
this hearing. I'm a little

768
00:47:36.180 --> 00:47:38.430
shocked, you didn't schedule the
hearing for nine o'clock

769
00:47:38.430 --> 00:47:42.630
tonight, because I think people
would really be fascinated by

770
00:47:42.660 --> 00:47:46.920
FinTech and the future of their
country, and you would be the

771
00:47:46.920 --> 00:47:53.580
star. So I'm sorry about that.
Let me start and say that I

772
00:47:53.580 --> 00:47:57.870
introduced bipartisan
legislation, HR 6306, the

773
00:47:57.870 --> 00:48:01.620
immediate funds availability
Act, which would increase the

774
00:48:01.620 --> 00:48:04.050
amount of funds bank customers
are able to receive and would

775
00:48:04.050 --> 00:48:07.200
require them to be made
available immediately, during

776
00:48:07.200 --> 00:48:10.410
the pandemic, and it would
sunset over three years, my

777
00:48:10.410 --> 00:48:15.150
friend, Mr. Foster of Illinois
introduced that bill, with me,

778
00:48:15.330 --> 00:48:19.500
and I hear from constituents
pretty frequently about they

779
00:48:19.500 --> 00:48:24.120
wonder why it takes so long that
even an on us check is not

780
00:48:24.120 --> 00:48:27.480
credited to their account, Mr.
Knight? What are what are some

781
00:48:27.480 --> 00:48:32.010
of the current obstacles that
cause banks to not be able to

782
00:48:32.010 --> 00:48:34.740
provide more immediate credit to
consumers?

783
00:48:36.780 --> 00:48:38.160
Brian Knight: Thank you,
Representative for that

784
00:48:38.160 --> 00:48:41.610
question. I mean, one of the one
of the existing issues is that

785
00:48:41.610 --> 00:48:44.430
the underlying infrastructure
and by this I mean, the the

786
00:48:44.430 --> 00:48:48.090
automated clearing house system
is not a real time system, and

787
00:48:48.090 --> 00:48:51.120
instead is a batch system that
has, I believe, gone to three

788
00:48:51.120 --> 00:48:56.250
windows five days a week. And so
they batch up all the payments,

789
00:48:56.340 --> 00:49:00.540
and transmit them during those
periods. So if your payment

790
00:49:00.540 --> 00:49:03.300
doesn't fall within one of those
periods, you'll have to move to

791
00:49:03.300 --> 00:49:06.360
the next day, or sometimes it
can move. You know, if it comes

792
00:49:06.360 --> 00:49:09.600
in late on a Friday, it may take
Monday or Tuesday to get there.

793
00:49:10.350 --> 00:49:13.050
That system made sense when it
was created. And that's a very

794
00:49:13.050 --> 00:49:15.600
efficient way to do it. It's a
cheap way to do it, which is

795
00:49:15.600 --> 00:49:19.980
important in the payment system.
But technology has moved on to

796
00:49:19.980 --> 00:49:23.670
the point where we can move to
real time payments, other

797
00:49:23.670 --> 00:49:26.310
countries have moved to real
time payments. There's a private

798
00:49:26.310 --> 00:49:29.160
system that provides real time
payments. And the Fed has

799
00:49:29.160 --> 00:49:32.310
announced a move to real time
payments. So all those things

800
00:49:32.310 --> 00:49:35.040
should allow for more expedient
payment.

801
00:49:35.700 --> 00:49:38.250
French Hill: Thank you very
much, Mr. Sands. I really

802
00:49:38.250 --> 00:49:41.580
enjoyed your testimony. And I
want to congratulate you on the

803
00:49:41.580 --> 00:49:46.650
success in your business. I was
on the CDFI advisory board

804
00:49:46.650 --> 00:49:49.620
during the George W. Bush
administration as a as the

805
00:49:49.620 --> 00:49:53.790
community bank representative
and I want to congratulate you

806
00:49:53.790 --> 00:49:55.620
on all the good work you're
doing and thanks for

807
00:49:55.620 --> 00:49:59.760
participating so vigorously for
our minority community but also

808
00:49:59.760 --> 00:50:03.600
in the PPP program. And I
enjoyed looking at your

809
00:50:03.600 --> 00:50:07.200
testimony, you mentioned the
importance of partnerships. I

810
00:50:07.200 --> 00:50:11.550
assume in the loan origination
arena that this idea of

811
00:50:11.850 --> 00:50:16.620
providing liquidity to FinTech
lenders, through the use of of a

812
00:50:16.620 --> 00:50:20.100
bank for balance sheet strength,
you think that's a good idea? If

813
00:50:20.100 --> 00:50:22.170
it's done right, I take it from
your testimony.

814
00:50:23.820 --> 00:50:25.770
Everett K. Sands: That'd be
correct, sir, I wanted it then I

815
00:50:25.770 --> 00:50:29.910
think we look at is that the US
right now is, is effectively

816
00:50:29.910 --> 00:50:33.690
losing a war at home. And so let
me just give you an example.

817
00:50:33.690 --> 00:50:37.050
Let's take a look at black
America and Citibank study that

818
00:50:37.050 --> 00:50:40.080
came out last week, it noticed
that over the last two decades,

819
00:50:40.530 --> 00:50:44.370
16 trillion in GDP could have
been created. If we close the

820
00:50:44.370 --> 00:50:49.320
wealth gap. If we go forward,
GDP would be grew by 5 trillion

821
00:50:49.320 --> 00:50:52.140
over five years, at 1 trillion a
year, let's just be clear about

822
00:50:52.140 --> 00:50:55.590
that. There's 195 countries in
the world, this will be better

823
00:50:55.590 --> 00:50:59.820
than 170 country's GDP are two
and a half times what we're

824
00:50:59.820 --> 00:51:02.940
doing with Chinese tariffs right
now. So I think it's very, very

825
00:51:02.940 --> 00:51:05.430
important that we solve some of
these things that we figure out

826
00:51:05.670 --> 00:51:07.650
a constructive measure and how
we move forward.

827
00:51:09.270 --> 00:51:11.700
French Hill: Well, I appreciate
that. And I also took note your

828
00:51:11.700 --> 00:51:15.450
exam frequency suggestions on
the CDFI loan funds, I look

829
00:51:15.450 --> 00:51:18.600
forward to following up with you
on that. And let me just

830
00:51:18.600 --> 00:51:22.320
conclude by your constructive
comment also on crypto currency

831
00:51:22.350 --> 00:51:26.580
that foster and I really are
working with the fit on a

832
00:51:26.580 --> 00:51:29.280
digital dollar and have
encouraged that work. And I'm

833
00:51:29.280 --> 00:51:33.450
pleased to see it advancing. And
we need a cryptocurrency payment

834
00:51:33.450 --> 00:51:36.810
rail as a part of our payment
system reforms. And I thank my

835
00:51:36.810 --> 00:51:38.520
friend, the Chairman, and I
yield back.

836
00:51:38.520 --> 00:51:48.650
Stephen F. Lynch: The gentleman
yields back. In the order of the

837
00:51:48.650 --> 00:51:53.090
committees, the Chair now
recognizes Mr. Davidson for five

838
00:51:53.090 --> 00:51:53.990
minutes for questions.

839
00:51:56.270 --> 00:51:59.120
Warren Davidson: Appreciate the
chairman. And I really just want

840
00:51:59.120 --> 00:52:02.840
to say thanks so much to the
committee for getting this,

841
00:52:02.840 --> 00:52:06.590
frankly, this between last
week's roundtable and this

842
00:52:06.590 --> 00:52:11.090
week's hearing. These are topics
that I've sought to address

843
00:52:11.360 --> 00:52:15.890
since joining the committee in
2017. So my sincere hope is that

844
00:52:15.890 --> 00:52:19.340
Speaker Boehner is saying about
how Congress works, which is to

845
00:52:19.340 --> 00:52:23.870
sum up very slowly, until it's
very fast. I hope that holds

846
00:52:23.870 --> 00:52:27.800
true for this long overdue area
of responsibility for House

847
00:52:27.800 --> 00:52:30.620
Financial Services Committee.
And, you know, to adequately

848
00:52:30.620 --> 00:52:34.340
regulate this area, we also need
to address a foundational

849
00:52:34.340 --> 00:52:38.420
principle, which is privacy,
frankly, consumer privacy,

850
00:52:38.540 --> 00:52:42.590
wrongly applying existing Bank
Secrecy Act provisions, for

851
00:52:42.590 --> 00:52:46.910
example, to a true distributed
ledger blockchain architecture

852
00:52:47.090 --> 00:52:50.720
would undermine privacy
undermine the security inherent

853
00:52:50.720 --> 00:52:54.380
to that technology, and
undermine the efficiency that

854
00:52:54.380 --> 00:52:57.920
FinTech offers our consumers,
innovators and investors,

855
00:52:57.920 --> 00:53:03.230
whether it's, you know, any any
number of unfathomable use

856
00:53:03.230 --> 00:53:08.180
cases, but in particular, as we
talk about payments, facilitated

857
00:53:08.180 --> 00:53:12.080
in bank charters, and Mr.
Carrillo laid out the challenges

858
00:53:12.080 --> 00:53:15.200
and opportunities nicely. While
I don't agree with his

859
00:53:15.200 --> 00:53:17.990
conclusion that all of this
needs centrally managed,

860
00:53:17.990 --> 00:53:21.530
particularly by the Postal
Service, his exposition on the

861
00:53:21.530 --> 00:53:25.400
stakes for privacy merits
primary attention for the

862
00:53:25.400 --> 00:53:28.940
regulatory framework and civil
liberties protections America

863
00:53:28.940 --> 00:53:33.230
needs. America needs a strong
law protecting consumer privacy

864
00:53:33.230 --> 00:53:37.310
and holding every company,
website, app, OEM etc,

865
00:53:37.310 --> 00:53:39.710
accountable, not just for
complying with whatever they

866
00:53:39.710 --> 00:53:42.410
want to put in their terms of
service, but rather with

867
00:53:42.410 --> 00:53:46.880
meaningful legal protections for
an individual's personal data.

868
00:53:47.390 --> 00:53:50.060
Concurrent with the development
of that privacy law, we need a

869
00:53:50.060 --> 00:53:53.960
more unified, not more
fragmented approach to

870
00:53:53.960 --> 00:53:58.910
regulation, one Prudential Bank
Rate regulator rather than a

871
00:53:58.910 --> 00:54:02.420
bigger, broader patchwork in the
absence of action by Congress,

872
00:54:02.540 --> 00:54:06.710
some states have already moved
ahead. Some with poor results,

873
00:54:06.710 --> 00:54:10.670
like New York's bit license
approach, and have scared

874
00:54:10.670 --> 00:54:14.600
capital and innovation offshore,
and others have been much better

875
00:54:14.600 --> 00:54:18.200
but no state has worked more
with more precision and clarity

876
00:54:18.200 --> 00:54:21.980
than Wyoming. So for Mr. Knight,
as you look at the approach in

877
00:54:21.980 --> 00:54:26.300
Wyoming that resulted in Krakens
bank charter, what are you

878
00:54:26.300 --> 00:54:30.860
seeing as being the most
important features for the

879
00:54:30.860 --> 00:54:34.670
federal level and ensuring this
kind of innovation takes place

880
00:54:34.670 --> 00:54:35.960
across the United States?

881
00:54:38.330 --> 00:54:42.080
Brian Knight: Thank you, Tim
Davidson. So when I look at that

882
00:54:42.080 --> 00:54:44.810
and the broader innovation
picture, I think what you need

883
00:54:44.840 --> 00:54:49.460
is you need a system that allows
for interstate competition that

884
00:54:49.460 --> 00:54:52.520
can involve a federal licensed
or chartered entity, but it

885
00:54:52.520 --> 00:54:55.670
should also allow state licensed
and chartered entities to have

886
00:54:55.670 --> 00:54:59.480
the essential powers they need
to compete interstate and allow

887
00:54:59.480 --> 00:55:04.250
consumers As to choose which
system they want. And you know

888
00:55:04.250 --> 00:55:08.150
what laws they want to take
advantage of. And then to your

889
00:55:08.150 --> 00:55:11.090
point about privacy, I think
you're absolutely right. And

890
00:55:11.090 --> 00:55:13.550
this is something that we need
to think very hard on. And yeah,

891
00:55:13.550 --> 00:55:17.270
as Miss Korea mentioned. First,
I think getting rid of cash is a

892
00:55:17.270 --> 00:55:20.630
bad idea. But secondly, we do
need to be thinking about

893
00:55:20.810 --> 00:55:25.850
privacy protection, balanced
with the legitimate needs of law

894
00:55:25.850 --> 00:55:29.180
enforcement. And that applies to
private sector actors, and and

895
00:55:29.180 --> 00:55:32.300
applies to public sector actors
as well. And so I think those

896
00:55:32.300 --> 00:55:34.970
are some of the essential things
Congress needs to be looking at.

897
00:55:35.570 --> 00:55:38.270
Warren Davidson: Yeah, so you
know, we're blending things

898
00:55:38.270 --> 00:55:40.610
here. But you know, when we look
at the architecture of

899
00:55:40.610 --> 00:55:43.550
distributed ledger technology,
it goes about it in a different

900
00:55:43.550 --> 00:55:47.330
way. So, you know, probably many
of the members of the committee

901
00:55:47.330 --> 00:55:51.110
and some of our witnesses saw,
you know, the BuzzFeed article

902
00:55:51.110 --> 00:55:54.110
that highlighted the SARS
approach that, frankly, hasn't

903
00:55:54.110 --> 00:55:59.720
resulted in a real stop to money
laundering. There's still a big

904
00:55:59.720 --> 00:56:03.560
problem. FinCEN highlights that,
but frankly, the approach is

905
00:56:03.560 --> 00:56:07.490
essentially the concern I've got
with Mr. trilhas. We're

906
00:56:07.490 --> 00:56:10.340
concerned about warrantless
surveillance. So why would we

907
00:56:10.340 --> 00:56:12.440
give the people that are doing
the most warrantless

908
00:56:12.440 --> 00:56:16.790
surveillance, more power to do
more? Why would we go double

909
00:56:16.790 --> 00:56:20.630
down on Bank Secrecy Act, anti
money laundering provisions

910
00:56:20.630 --> 00:56:24.980
that, that create a bigger black
market, frankly, that

911
00:56:24.980 --> 00:56:28.400
underserved the underbanked
already, and that's where I

912
00:56:28.400 --> 00:56:33.380
think the encouraging work in
FinTech companies like bank U,

913
00:56:33.380 --> 00:56:36.590
which are banking, the unbanked
and creating a transaction

914
00:56:36.590 --> 00:56:40.700
history, that really helps build
an identity for people. They're

915
00:56:40.700 --> 00:56:43.040
doing that outside the United
States, but an Austin based

916
00:56:43.040 --> 00:56:46.940
company, and when you look at
these kinds of companies, before

917
00:56:46.940 --> 00:56:49.760
they can be regulated as a bank,
they have to raise the capital.

918
00:56:50.060 --> 00:56:53.090
So that's why getting the
certainty into the regulatory

919
00:56:53.090 --> 00:56:55.220
framework as to what's the
security and what's not a

920
00:56:55.220 --> 00:56:59.900
security is so vital. So I hope
our committee will take that up

921
00:56:59.900 --> 00:57:03.830
and notice some of the bills in
this space. As you can tell,

922
00:57:03.860 --> 00:57:06.770
I've got more to cover in the
space than we can't in this

923
00:57:06.770 --> 00:57:09.260
hearing. But thanks again to the
committee for the work to put

924
00:57:09.260 --> 00:57:12.890
this together. Thanks, Mr.
Foster, Mr. Emmer, for getting

925
00:57:12.890 --> 00:57:17.420
it here. And appreciate our our
witnesses. Thanks again, and I

926
00:57:17.420 --> 00:57:17.810
yield.

927
00:57:19.670 --> 00:57:22.400
Stephen F. Lynch: The gentleman
yields back, much appreciated.

928
00:57:22.520 --> 00:57:25.910
The Chair now recognizes my
friend from Michigan, Mr. Lead

929
00:57:25.910 --> 00:57:27.200
for five minutes for questions.

930
00:57:28.590 --> 00:57:31.530
Rashida Tlaib: Thank you so much
chairman. As we all know, the

931
00:57:31.530 --> 00:57:34.650
pandemic and COVID-19 has
exposed a number of broken

932
00:57:34.650 --> 00:57:38.460
systems not only in our health
care system, but also the

933
00:57:38.460 --> 00:57:42.300
economic divide in our country.
And this includes the barriers

934
00:57:42.300 --> 00:57:45.180
that exists due to lack of bank
branches in many low and

935
00:57:45.180 --> 00:57:47.520
moderate income neighborhoods
and mostly notably black

936
00:57:47.520 --> 00:57:51.300
neighborhoods, like those in my
district. So there's no doubt

937
00:57:51.300 --> 00:57:54.330
that companies to me, I truly
believe this that Amazon,

938
00:57:54.330 --> 00:57:59.070
Facebook, JP Morgan, Venmo, and
PayPal, will take advantage of

939
00:57:59.070 --> 00:58:02.640
the financial gap in the market
that will lead to exploitation

940
00:58:02.640 --> 00:58:07.320
of the unbanked and underbanked
communities. I know the OCC has

941
00:58:07.320 --> 00:58:11.100
proceeded to move forward and
really I believe overstepped its

942
00:58:11.100 --> 00:58:14.160
authority by determining what a
bank is, or removing that

943
00:58:14.160 --> 00:58:19.410
authority from Congress to
determine. Ultimately, again,

944
00:58:19.410 --> 00:58:23.250
what's the best interest of the
American people? So Mr. K Rail,

945
00:58:23.250 --> 00:58:25.800
I think I'm saying a row
correctly, do you think that the

946
00:58:25.800 --> 00:58:29.520
consumers treat should be
treated differently or be

947
00:58:29.520 --> 00:58:32.610
offered less protection by
FinTech companies than they are

948
00:58:32.610 --> 00:58:33.690
with traditional banks?

949
00:58:35.190 --> 00:58:37.350
Raul Carrillo: Thank you
representative Tlaib, the short

950
00:58:37.350 --> 00:58:40.230
answer to your question is no. I
don't think that consumers

951
00:58:40.230 --> 00:58:43.800
should have fewer protections,
mainly because they're using a

952
00:58:43.800 --> 00:58:48.660
big tech platform, for instance,
that poor tends to store funds

953
00:58:48.660 --> 00:58:52.920
for long periods of time, but
not offer corollary protections.

954
00:58:53.220 --> 00:58:56.940
And to your point, I think that
Congress needs to step up here,

955
00:58:57.120 --> 00:59:00.630
defining what a deposit is
define what banking is, and make

956
00:59:00.630 --> 00:59:04.200
sure that when funds are exposed
and used in this manner, that

957
00:59:04.200 --> 00:59:08.070
consumers have specific
protections. This is especially

958
00:59:08.070 --> 00:59:11.310
important when mobile payment
platforms and other FinTech

959
00:59:11.310 --> 00:59:14.190
technologies are being
advertised to communities of

960
00:59:14.190 --> 00:59:18.600
color as a way up is a path
towards upward mobility in our

961
00:59:18.600 --> 00:59:22.560
society. privacy protections are
also extremely important here.

962
00:59:22.740 --> 00:59:26.280
consumer protections cannot be
avoided in that either. We

963
00:59:26.280 --> 00:59:29.190
cannot ask communities of color
to fundamentally sacrifice the

964
00:59:29.190 --> 00:59:32.340
privacy, especially given the
way the data is used for

965
00:59:32.340 --> 00:59:36.720
corporations for targeted ads,
etc. But also the way that law

966
00:59:36.720 --> 00:59:40.530
enforcement agencies made intend
to misuse the data that is

967
00:59:40.530 --> 00:59:43.740
collected, especially from black
folks, Muslim folks, Latino

968
00:59:43.740 --> 00:59:46.020
folks, indigenous folks and
people who have political

969
00:59:46.020 --> 00:59:48.270
dissent with existing
government. Thank you.

970
00:59:48.750 --> 00:59:51.150
Rashida Tlaib: So given our
recent negative experience with

971
00:59:51.150 --> 00:59:55.080
unregulated shadow banks, which
is a huge issue regarding the

972
00:59:55.080 --> 00:59:57.390
safety and soundness of
privately issued mobile money,

973
00:59:57.990 --> 01:00:02.010
so it is really risky to out
unregulated fin tech companies

974
01:00:02.010 --> 01:00:04.860
to offer critical payment
services to low and moderate

975
01:00:04.890 --> 01:00:07.770
income communities. And to roll
one of the things I want, you

976
01:00:07.770 --> 01:00:10.440
know, when I'm trying to explain
this to my mom, what are we what

977
01:00:10.440 --> 01:00:13.200
is the worst case scenario here
for many of our residents at

978
01:00:13.200 --> 01:00:13.590
home?

979
01:00:14.790 --> 01:00:17.460
Raul Carrillo: Well, we're
talking about fundamentally

980
01:00:17.490 --> 01:00:20.190
moving payments towards a system
that is not appropriately

981
01:00:20.190 --> 01:00:22.920
protected. I agree with Mr.
Knight and the other panelists

982
01:00:22.920 --> 01:00:25.590
that things are changing via the
pandemic. But I have actually

983
01:00:25.590 --> 01:00:28.770
not seen any hard evidence that
these private FinTech companies

984
01:00:28.770 --> 01:00:32.700
are, quote unquote, saving the
day. In fact, I am worried about

985
01:00:32.700 --> 01:00:35.700
the transactions occurring
without proper protections. And

986
01:00:35.700 --> 01:00:38.280
if anything, as I mentioned, in
my testimony, it's even more

987
01:00:38.280 --> 01:00:42.030
important to make sure that we
are establishing a framework in

988
01:00:42.030 --> 01:00:43.140
the public interest.

989
01:00:43.740 --> 01:00:45.150
Rashida Tlaib: Yeah, and
actually, during the pandemic

990
01:00:45.150 --> 01:00:47.910
actually see them expanding
their services, which seems to

991
01:00:47.910 --> 01:00:50.970
be more in the same of
traditional banks right now. And

992
01:00:50.970 --> 01:00:54.120
so, do you believe that OCC is
the best suited to have

993
01:00:54.120 --> 01:00:56.880
regulatory authority over
FinTech and tech companies

994
01:00:56.880 --> 01:01:00.090
offering stable coin deposits?
Or is there an agency more

995
01:01:00.090 --> 01:01:03.630
suited to deal with the coins
resulting payment system and

996
01:01:03.630 --> 01:01:07.020
resulting payment system like
FDIC or the feds?

997
01:01:07.800 --> 01:01:09.750
Raul Carrillo: Another excellent
question. Thank you,

998
01:01:09.750 --> 01:01:12.660
Representative Tory, I think
that the banking regulators and

999
01:01:12.660 --> 01:01:14.880
Congress need to have a
discussion about extending

1000
01:01:14.880 --> 01:01:18.630
protections. But to your point,
there's a fundamentally a gap in

1001
01:01:18.630 --> 01:01:21.630
the law right now that allow
shadow banking generally, as

1002
01:01:21.630 --> 01:01:24.060
Professor Wilmarth research has
shown is Vanderbilt law,

1003
01:01:24.060 --> 01:01:27.150
Professor Morgan, Rick's
research has shown and this has

1004
01:01:27.150 --> 01:01:30.870
to be addressed, or we're not
going to have coherent baking

1005
01:01:30.870 --> 01:01:33.600
law. And we're not going to have
it before Silicon Valley enters

1006
01:01:33.600 --> 01:01:35.340
the fray and makes it all the
more necessary.

1007
01:01:36.150 --> 01:01:38.880
Rashida Tlaib: Yeah, and so just
and for, I'm really pleased,

1008
01:01:38.880 --> 01:01:41.880
thank you, Chairman for allowing
me part of this last taskforce

1009
01:01:41.910 --> 01:01:45.630
meeting. But, you know, although
such FinTech companies may be

1010
01:01:45.630 --> 01:01:49.680
offering new benefits, this type
of product offered, goes beyond

1011
01:01:49.680 --> 01:01:52.500
the reach of fair lending laws
and regulations, which is what

1012
01:01:52.500 --> 01:01:55.770
we should be worrying about the
most right now. So I hope that

1013
01:01:55.770 --> 01:01:59.070
we move forward and trying to
create, again, some sort of way

1014
01:01:59.070 --> 01:02:02.460
to make sure that our residents
are protected as these FinTech

1015
01:02:02.460 --> 01:02:05.220
companies move in towards
traditional banking, our

1016
01:02:05.220 --> 01:02:07.020
community. So thank you so much,
and I yield.

1017
01:02:08.010 --> 01:02:10.020
Everett K. Sands: Representative
Tlaib, may I present a question?

1018
01:02:12.240 --> 01:02:14.190
Rashida Tlaib: Sure, I have 18
seconds, go ahead.

1019
01:02:15.030 --> 01:02:17.100
Everett K. Sands: I think we
need to be careful about

1020
01:02:17.220 --> 01:02:20.970
defining underserved versus
poorly served. And so one of the

1021
01:02:20.970 --> 01:02:23.940
things I would like to recommend
this committee to do is we

1022
01:02:23.940 --> 01:02:26.370
constantly are talking about the
stick, we've not talked about

1023
01:02:26.370 --> 01:02:29.880
the carrot. And if we can
incentivize good practitioners

1024
01:02:30.060 --> 01:02:35.490
to come in, in states like your
own, properly served, there are

1025
01:02:35.490 --> 01:02:38.190
good institutions that are
trying to do these things.

1026
01:02:38.880 --> 01:02:41.610
Rashida Tlaib: I agree. And I've
worked with many of the local

1027
01:02:41.610 --> 01:02:43.950
institutions to do that. We're
just not doing enough of it.

1028
01:02:48.060 --> 01:02:50.280
Stephen F. Lynch: At this point,
I'm just gonna go with one

1029
01:02:50.280 --> 01:02:54.030
follow up question. And of
course, I would afford Mr. Amer

1030
01:02:54.720 --> 01:03:00.060
a follow up question on on the
Republican side. Mr. Fan, one of

1031
01:03:00.060 --> 01:03:05.520
the great promises of FinTech
was the idea that it might help

1032
01:03:05.520 --> 01:03:10.350
us to bank the unbanked and, and
the evidence is really mixed.

1033
01:03:11.190 --> 01:03:15.390
You know, we've we've seen
examples where, you know, the

1034
01:03:15.390 --> 01:03:19.350
use of certain algorithms have
blocked out people, they've been

1035
01:03:19.350 --> 01:03:26.250
an obstacle to financial access.
And then we've seen I've seen

1036
01:03:26.250 --> 01:03:32.070
areas in Nigeria and other parts
of Africa where, you know, it's

1037
01:03:32.070 --> 01:03:35.760
the only game in town and it's
actually there's been no legacy

1038
01:03:35.790 --> 01:03:39.930
banking system there. So it's
actually worked wonders in some

1039
01:03:39.930 --> 01:03:44.580
of those countries. Somalia is
is a, you know, a particular

1040
01:03:44.580 --> 01:03:48.660
problem. And I think the answer
has to be FinTech in some some

1041
01:03:48.660 --> 01:03:54.300
fashion or mobile banking. How
do we how do we maximize that

1042
01:03:54.330 --> 01:04:02.280
that promise of, of banking the
unbanked? Especially where we're

1043
01:04:02.280 --> 01:04:10.020
looking at this shift, where
FinTech you know, arguably large

1044
01:04:10.080 --> 01:04:14.910
tech firms come in, and and
they're the driving force in

1045
01:04:14.910 --> 01:04:18.390
this? How do we how do we make
sure that we fulfill that

1046
01:04:18.390 --> 01:04:23.730
promise of getting the unbanked
in, in whatever the final

1047
01:04:23.730 --> 01:04:27.810
version of our solution might
look like? I'd like to get your

1048
01:04:27.840 --> 01:04:33.120
your you got a great
perspective. You know, in your

1049
01:04:33.120 --> 01:04:36.090
position, I'd love to hear your
your thoughts on that.

1050
01:04:37.650 --> 01:04:38.820
Everett K. Sands: Thank you,
Chairman Lynch for the

1051
01:04:38.820 --> 01:04:42.210
opportunity. I think in this is
one of the things I'd like to be

1052
01:04:42.360 --> 01:04:46.050
to ask all of us to consider is
that we have to be very careful

1053
01:04:46.050 --> 01:04:48.690
about the stick and not think
about the carrot. As I mentioned

1054
01:04:48.690 --> 01:04:53.220
before, the modernization of
laws would be very important. We

1055
01:04:53.220 --> 01:04:56.670
enabled the good guys to be able
to do what they do in a high

1056
01:04:56.670 --> 01:04:59.880
quality way. I will give you an
example Chairman Lynch, I wanted

1057
01:04:59.910 --> 01:05:03.780
it Linda, she wanted to provide
PPP loans in your state. But we

1058
01:05:03.780 --> 01:05:06.390
were not allowed to because of
the current rules. Again, the

1059
01:05:06.390 --> 01:05:09.810
current rules under SBA and
others have been made to be a

1060
01:05:09.810 --> 01:05:13.170
form of risk management. While
we respect them, there needs to

1061
01:05:13.170 --> 01:05:17.520
be some type of review, so that
the good guys aren't fighting

1062
01:05:17.520 --> 01:05:19.890
the fight with one hand behind
their back representative

1063
01:05:19.890 --> 01:05:22.080
tallied just mentioned that
we're not doing things in a

1064
01:05:22.080 --> 01:05:24.600
scalable fashion. Part of the
reason why we're not doing them

1065
01:05:24.600 --> 01:05:28.110
in a scalable fashion is because
we're not allowed to, for

1066
01:05:28.140 --> 01:05:30.420
another example, we were not
allowed to participate in the

1067
01:05:30.420 --> 01:05:33.240
mainstream program. We're not
allowed to become members of the

1068
01:05:33.240 --> 01:05:36.630
Federal Reserve System, I really
think that we look and we give

1069
01:05:36.630 --> 01:05:40.260
the good guys an opportunity to
participate in a high quality

1070
01:05:40.260 --> 01:05:43.290
way, you're going to see massive
changing and massive things

1071
01:05:43.290 --> 01:05:47.460
happen. And then I think the
good guys will overshadow and

1072
01:05:47.460 --> 01:05:50.490
quite frankly beat from a
competitive perspective. Many of

1073
01:05:50.490 --> 01:05:52.830
the unscrupulous players. Thank
you again, Chairman Lynch.

1074
01:05:56.820 --> 01:05:57.570
You're on mute sir.

1075
01:06:03.780 --> 01:06:08.340
Tom Emmer: Mr. Lynch, staff
member I let your staff know, I

1076
01:06:08.340 --> 01:06:10.680
had no objection to an
additional question and don't

1077
01:06:10.680 --> 01:06:12.660
have any right at this mall.
Okay.

1078
01:06:12.720 --> 01:06:15.330
Stephen F. Lynch: Well, Mr. Mr.
Carrillo? Could you could you

1079
01:06:16.380 --> 01:06:19.950
follow up on that question? I
know I have like a minute and 45

1080
01:06:19.980 --> 01:06:22.500
seconds left, I thought you
might have an interesting

1081
01:06:22.500 --> 01:06:23.580
perspective as well.

1082
01:06:26.160 --> 01:06:28.560
Raul Carrillo: To clarify, Chair
Lynch, she left me to comment on

1083
01:06:28.560 --> 01:06:31.860
how do we best approach the
problem of serving the unbanked

1084
01:06:31.860 --> 01:06:32.430
and the underbanked.

1085
01:06:32.880 --> 01:06:35.490
Stephen F. Lynch: Right, right.
That's the big promise that we

1086
01:06:35.490 --> 01:06:40.440
can bank the we can we can bank
the unbanked and I'm the results

1087
01:06:40.440 --> 01:06:45.720
have been mixed. And I'd like to
figure out for you can just

1088
01:06:45.720 --> 01:06:47.520
elaborate on how we can do
better.

1089
01:06:47.610 --> 01:06:50.250
Raul Carrillo: Yes, sir. I think
that if providing payments

1090
01:06:50.250 --> 01:06:54.450
infrastructure, and banking
services is as important as

1091
01:06:54.450 --> 01:06:57.420
everybody on this panel that
says it is today, then we need

1092
01:06:57.420 --> 01:07:01.080
to establish a public option, we
need to start treating this sort

1093
01:07:01.080 --> 01:07:04.200
of infrastructure like it is
integral to the economy, it very

1094
01:07:04.200 --> 01:07:09.750
much is. And I think that
fundamentally, firms, you know,

1095
01:07:09.810 --> 01:07:12.840
no matter how noble or
altruistic, they may be in their

1096
01:07:12.840 --> 01:07:17.940
outlook, tend to gain customers
based on whether those customers

1097
01:07:17.940 --> 01:07:20.910
are going to be profitable to
them. There is no public service

1098
01:07:20.910 --> 01:07:23.820
mandate for these companies. And
I doubt that folks who run the

1099
01:07:23.820 --> 01:07:27.420
companies would welcome such a
mandate. If we do think that

1100
01:07:27.420 --> 01:07:31.980
it's important, as everybody
needing to have basic digital

1101
01:07:31.980 --> 01:07:35.400
financial services in the 21st
century, then we need to treat

1102
01:07:35.400 --> 01:07:38.640
this like railroads, like canals
like telecom infrastructure is

1103
01:07:38.640 --> 01:07:41.670
in other countries, and provide
it to everybody as matter of

1104
01:07:41.670 --> 01:07:42.210
course.

1105
01:07:44.610 --> 01:07:45.600
Stephen F. Lynch: Thank you very
much.

1106
01:07:45.840 --> 01:07:48.450
Arthur E. Wilmarth: Mr.
Chairman, Lynch.

1107
01:07:48.900 --> 01:07:49.920
Stephen F. Lynch: Please go
right ahead.

1108
01:07:49.920 --> 01:07:50.010
Arthur E. Wilmarth: Go right
ahead?

1109
01:07:50.880 --> 01:07:51.180
Stephen F. Lynch: Yeah.

1110
01:07:51.840 --> 01:07:54.360
Arthur E. Wilmarth: I think as
we go forward, I think it's

1111
01:07:54.360 --> 01:07:59.670
critical not to allow non banks
to do what banks are doing

1112
01:07:59.670 --> 01:08:02.310
without the same type of
regulatory and public interest

1113
01:08:02.310 --> 01:08:05.580
safeguards that we've
established for banks. And this

1114
01:08:05.580 --> 01:08:09.450
Creo focused on the issue, the
issue of deposits that payments

1115
01:08:09.450 --> 01:08:12.840
providers are essentially
holding deposits, without any

1116
01:08:12.840 --> 01:08:16.140
deposit insurance, or any of the
other requirements that we

1117
01:08:16.170 --> 01:08:18.270
impose on depository
institutions, what if one of

1118
01:08:18.270 --> 01:08:21.900
those payment providers fail,
that customers are going to

1119
01:08:21.900 --> 01:08:24.240
demand their money back and
there's gonna be no deposit

1120
01:08:24.240 --> 01:08:27.390
insurance? The one other thing I
would say is I think there is

1121
01:08:27.930 --> 01:08:32.160
good space for partnerships
between banks and fintechs, if

1122
01:08:32.160 --> 01:08:35.520
it's done in a in a legal and
responsible way, and I would

1123
01:08:35.520 --> 01:08:39.540
point the committee has the task
force to the recent Marlette

1124
01:08:39.780 --> 01:08:44.010
avant settlement in Colorado
where the bank that partners

1125
01:08:44.010 --> 01:08:47.310
with a non bank lender has to
maintain control over the

1126
01:08:47.310 --> 01:08:51.840
lending, and they have to comply
with the 36% cap on interest

1127
01:08:51.840 --> 01:08:55.650
rates. They they can't simply
claim pre emptive immunity and

1128
01:08:55.680 --> 01:08:59.820
try to make 100% loan. So I
think there there's room for

1129
01:08:59.850 --> 01:09:02.880
good partnerships, but but we
have to maintain the integrity

1130
01:09:02.880 --> 01:09:06.060
of banking regulation, and the
public interest safeguards that

1131
01:09:06.060 --> 01:09:07.890
we expect banks to comply with.

1132
01:09:09.450 --> 01:09:12.811
Tom Emmer: I appreciate that,
and I agree. Mr. Chairman, I

1133
01:09:12.882 --> 01:09:16.530
will change my approach. I would
like to follow up.

1134
01:09:16.530 --> 01:09:18.780
Stephen F. Lynch: Please, go
right ahead. Go right ahead. Go right.

1135
01:09:18.780 --> 01:09:21.757
Tom Emmer: I appreciate it. And
Mr. Carrillo, you know, the

1136
01:09:21.820 --> 01:09:25.728
struck me when you were speaking
earlier, beware of the promise

1137
01:09:25.790 --> 01:09:29.575
of helping out the unbanked with
an open it open distributive

1138
01:09:29.637 --> 01:09:33.483
ledger type technology. I think
the promise is enormous. And I

1139
01:09:33.545 --> 01:09:37.454
think government quite frankly,
is putting up obstacles and the

1140
01:09:37.516 --> 01:09:41.487
uncertainty is is getting in the
way of the idea that we have to

1141
01:09:41.549 --> 01:09:45.209
have intermediaries and all
these things. Which is I think,

1142
01:09:45.271 --> 01:09:49.180
where all of you are coming from
and that's not exactly the way

1143
01:09:49.242 --> 01:09:52.716
all cryptocurrency works. I
would say Mr. Knight, do you

1144
01:09:52.778 --> 01:09:56.625
have a another side of this coin
where we should be looking at

1145
01:09:56.687 --> 01:09:59.913
the real promised that this
would afford not just to

1146
01:09:59.975 --> 01:10:03.511
innovation and the ability to
access capital, but for the

1147
01:10:03.573 --> 01:10:07.171
unbanked that folks that just
haven't been included in the

1148
01:10:07.234 --> 01:10:10.956
system, where there's someone on
the other side of the world

1149
01:10:11.018 --> 01:10:14.554
because of cultural reasons,
maybe it's a young woman who

1150
01:10:14.616 --> 01:10:18.587
isn't allowed to do this sort of
thing or hasn't been this would

1151
01:10:18.649 --> 01:10:22.310
give them a lot of hope, would
appreciate your perspective.

1152
01:10:26.070 --> 01:10:28.802
Brian Knight: Thank you
representative Emmer. Yeah. So I

1153
01:10:28.867 --> 01:10:32.967
do believe that you're perhaps
giving short shrift to the value

1154
01:10:33.032 --> 01:10:37.001
of competition and innovation in
helping to serve people. And

1155
01:10:37.066 --> 01:10:40.840
that's not to say that there
aren't rules of the road that

1156
01:10:40.905 --> 01:10:44.874
should be followed, those rules
really need to be tied to the

1157
01:10:44.939 --> 01:10:48.909
actual risks created and not
just applied holistically across

1158
01:10:48.974 --> 01:10:53.008
all competitors, regardless of
differences in business models.

1159
01:10:53.073 --> 01:10:57.042
And I do think that we've seen
that changes in business model

1160
01:10:57.107 --> 01:11:00.621
changes technology, more
efficiencies gained, can help

1161
01:11:00.686 --> 01:11:04.265
make providing services to some
groups where it used to

1162
01:11:04.330 --> 01:11:08.364
previously not be cost effective
or feasible. It helps improve

1163
01:11:08.429 --> 01:11:12.464
that now the changes are often
marginal, right? If we don't go

1164
01:11:12.529 --> 01:11:16.368
from, you know, 10%, lack of
access to zero lack of access,

1165
01:11:16.433 --> 01:11:20.272
but marginal improvements do
matter. And we I think we need

1166
01:11:20.337 --> 01:11:24.241
to be very cautious and always,
always bear in mind that the

1167
01:11:24.306 --> 01:11:28.536
costs of regulation, the cost of
the forgone service, in addition

1168
01:11:28.601 --> 01:11:32.375
to the potential risks from a
lack of regulation, it's two

1169
01:11:32.440 --> 01:11:36.930
sides, two sides of the balance,
and they both need to be considered.

1170
01:11:37.350 --> 01:11:40.350
Tom Emmer: Amen. Mr. Chairman,
at this point, I would

1171
01:11:40.620 --> 01:11:43.350
respectfully yield the balance
of my time to my colleague from

1172
01:11:43.350 --> 01:11:44.610
Ohio, Mr. Davidson.

1173
01:11:47.430 --> 01:11:50.252
Warren Davidson: Thank the
Ranking Member, thanks for this

1174
01:11:50.321 --> 01:11:54.451
extra question here. And, you
know, Mr. Sands, as you spoke,

1175
01:11:54.520 --> 01:11:58.857
you know, I thought of so many
companies that I've met with and

1176
01:11:58.926 --> 01:12:02.919
so many innovators I've met
with, who have been frustrated

1177
01:12:02.988 --> 01:12:06.705
by the lack of regulatory
clarity, or the stigma that,

1178
01:12:06.774 --> 01:12:11.180
frankly, bad actors have put on
this innovative space. And their

1179
01:12:11.249 --> 01:12:14.828
plea hasn't been for no
regulation. Frankly, they've

1180
01:12:14.897 --> 01:12:18.408
pled for some regulatory
clarity. In fact, a lot of

1181
01:12:18.477 --> 01:12:22.676
companies have left the United
States, not to avoid our laws,

1182
01:12:22.745 --> 01:12:26.669
but to find regulatory clarity
where they can do the very

1183
01:12:26.738 --> 01:12:31.075
things they've promised here in
the United States, but frankly,

1184
01:12:31.144 --> 01:12:34.930
for others, and, and so you
know, as we think about the

1185
01:12:34.999 --> 01:12:39.129
charter, that we're talking
about, or as we think about even

1186
01:12:39.198 --> 01:12:43.466
raising capital, have you heard
this phenomenon? And then when

1187
01:12:43.535 --> 01:12:48.010
you think about the architecture
that some whether it's your firm

1188
01:12:48.079 --> 01:12:51.658
or others in the space, have,
you know, what are the

1189
01:12:51.727 --> 01:12:55.376
challenges of having this
technology that maybe has a

1190
01:12:55.445 --> 01:12:59.162
similar objective, Faster
Payments, for example, but a

1191
01:12:59.231 --> 01:13:03.224
different architecture. So the
regulatory framework, to me

1192
01:13:03.293 --> 01:13:07.217
seems that it has to allow for
both in states is consumer

1193
01:13:07.285 --> 01:13:11.278
protection, for example to
happen, but maybe compliance is

1194
01:13:11.347 --> 01:13:15.271
done in a different way you
deliver the protection in the

1195
01:13:15.340 --> 01:13:19.539
firm, but you may be able to
comply differently than somebody

1196
01:13:19.608 --> 01:13:23.876
who maybe gets really good at
printing off some more SARS, and

1197
01:13:23.945 --> 01:13:28.075
providing surveillance services
for federal agencies. So Mr.

1198
01:13:28.144 --> 01:13:30.210
Sands, could you address that?

1199
01:13:31.320 --> 01:13:32.760
Everett K. Sands: Absolutely.
Thank you, Representative

1200
01:13:33.090 --> 01:13:37.380
Davison. I think one of the keys
to success that we are, we

1201
01:13:37.380 --> 01:13:41.760
haven't quite focused on but it
can't be underscored is that, as

1202
01:13:41.760 --> 01:13:44.820
I mentioned, I've been regulated
about eight different regulators

1203
01:13:44.820 --> 01:13:47.220
at a time. Even here at
ministry, we have five different

1204
01:13:47.220 --> 01:13:50.310
regulators, the convergence of
multiple regulators at the same

1205
01:13:50.310 --> 01:13:54.450
time as part of the secret to
success of regulation. So I want

1206
01:13:54.450 --> 01:13:56.670
us to always keep that in the
forefront and think about that,

1207
01:13:56.670 --> 01:14:00.600
as we move into to decide the
future decisions. One of the

1208
01:14:00.600 --> 01:14:03.510
things that we do need to make
sure we think about with OCC is

1209
01:14:03.510 --> 01:14:06.330
that they kind of crawl, walk,
run, because if they step out by

1210
01:14:06.330 --> 01:14:11.730
themselves without some what I
call peers, it could change

1211
01:14:11.730 --> 01:14:15.630
things. That being said, we do
need to definitely think about

1212
01:14:15.630 --> 01:14:18.150
how do we modernize and how do
we think about the future? There

1213
01:14:18.150 --> 01:14:22.620
is an amazing opportunity to
grow GDP growth, tax revenue, I

1214
01:14:22.620 --> 01:14:25.980
think if we do this correctly,
thank you, sir.

1215
01:14:26.640 --> 01:14:29.220
Warren Davidson: Thanks so much,
Mr. Mr. I yield your time back.

1216
01:14:29.250 --> 01:14:30.990
Yeah, that's I've fully
consumed.

1217
01:14:33.630 --> 01:14:38.370
Stephen F. Lynch: Okay, so that
concludes our witness testimony.

1218
01:14:38.370 --> 01:14:42.960
I want to thank Mr. courriel
sands, Professor Wilmarth and

1219
01:14:42.990 --> 01:14:46.230
Mr. Knight for your
contributions, very thoughtful

1220
01:14:46.650 --> 01:14:54.000
commentary. just in conclusion.
I do want to note that, without

1221
01:14:54.000 --> 01:14:56.760
objection, the following letters
will be placed into today's

1222
01:14:56.760 --> 01:15:00.000
record. Those are letters from
the conference of statement

1223
01:15:00.000 --> 01:15:03.750
Thinking supervisors, the
American Bankers Association,

1224
01:15:04.140 --> 01:15:08.220
the Utah Department of Financial
Institutions the center as well

1225
01:15:08.220 --> 01:15:12.210
lending, the electronic
transactions Association and the

1226
01:15:12.210 --> 01:15:15.300
National Association of federal
credit unions. Without

1227
01:15:15.300 --> 01:15:17.790
objection, all members will have
five legislative days within

1228
01:15:17.790 --> 01:15:19.530
which to submit additional
written questions for the

1229
01:15:19.530 --> 01:15:22.050
witnesses to the chair, which
will be forwarded to the

1230
01:15:22.050 --> 01:15:25.200
witnesses for their response and
I ask our witnesses to please

1231
01:15:25.290 --> 01:15:28.680
respond as promptly as you're
able, without objection, all

1232
01:15:28.680 --> 01:15:30.900
members will have five
legislative days within which to

1233
01:15:30.900 --> 01:15:33.390
submit extraneous materials to
the chair for inclusion in the

1234
01:15:33.390 --> 01:15:36.570
record. And I remind members to
submit written questions and

1235
01:15:36.570 --> 01:15:39.720
materials for the record to the
email address provided to your

1236
01:15:39.720 --> 01:15:44.250
staff. This hearing is now
adjourned. Thank you, and please

1237
01:15:44.250 --> 01:15:46.020
stay safe. Have a great day.