It up a little we have spoken basically on.
crypto
Now, let's speak a little on fintechs.
Let's speak of what's going
on with fintech. What is what's going on cedra?
I started this way before I will start this way.
Now so that makes you the first Miss Grim
as all of you get comfortable.
Miss Grimm
Good afternoon. Um, I like
to thank you Senator Sanders and the rest of the committee for inviting us here to
speak today. Hi, my
name is Natalie Pappas, and I'm the assistant general counsel for
a company called rapid Finance.
However, today I'm here on behalf of the small
business finance Association the sbfa which
is a leading trade Association for alternative
Finance providers these types of providers
offer small business loans small business signs of credit
as well as sales based financing products.
So we're here to talk today about your
bill that you've proposed Senate Bill 1450 regarding
licensure of small business finding
per products as well as the Brokers
that might assist these small businesses with Finance
with these types of products the spfa
shares your goal shares your common goal in order
to license these entities so that
the state of New York is able to understand not overly the
companies that are operating in New York as well
as the types of products that are being offered here. It is
important in order to
to license her to propose legislation with after
understanding who is actually in the industry and
what the goals are.
Our initial go. I know we've worked with you in the passenger Sanders regarding
licensing and other bills regarding the
fintech or the commercial financing industry
and we believe that
you know, implementing licensure bringing everybody
that's in the space together is a good a
good first step for this. We know
that
we had proposed trying to do licensure before the small
the commercial financing disclosure bill just so that we could
get you the state could get a better understanding of what's going on.
Unfortunately, it was reversed.
So the small business Commercial disclosure are
the commercial financing bill is
currently in place in the regulations go into effect shortly. However,
that the regulations do not come with
any licensure of the providers of this commercial financing
nor for the Brokers. So we do think that
is important to also have some type of Licensing regime
regime so that so that
these providers are licensed in
the state is able to
To further work and you know build.
To build this licensing out so that they know who's here.
While we are very in support of this licensure, we
think the bill has a couple of technical amendments. So we'd love to work with you in
the future one to try to make it so that it
it makes sense. It's in line with maybe some of the
definitions that are in the commercial disclosures and
regulations just so everything's more cohesive. But like
I said, you know, we're here to work with
you and we are happy to be of any assistance and resources, so
I want to thank you today.
Thank you.
Yes, good afternoon. My name is Amy Carpenter
homes. I am a deputy General closer. Look closer.
That better. Yes, okay.
My name is Amy Carpenter homes. I am
a deputy General Consulate capitis. Thank you
very much for having me here today to testify regarding the
regulatory framework for financial technology
or fintech companies. I will be
addressing the regulatory framework for fintech that
provide financing to small businesses or who
act as Brokers on behalf of small businesses in those transactions.
Small businesses, as you know are a backbone of the economy of
the United States and here in the state of New York, and I'd
like to thank you in the entire committee for bringing attention to these
important issues.
To some background capitis is a financial technology company
founded in New York City in 2006 that
provides Capital to small businesses through
in technology enabled under writing.
Capitis has provided billions and financing to small businesses
exception in section. Excuse me,
increasing small businesses access to Capital
in New York capitis enters into contracts with
small businesses. We're a purchases a percentage
of a small businesses future income in exchange for
a fixed payment to the business unlike loans provide
by many traditional Banks campuses financing options
allow small businesses to use
the financing for any purpose. The finding scene
options are extended faster and more efficiently do not
require personal collateral from the owner of the business and
importantly adjust small businesses repayment obligations,
either automatically or upon request if the
small business experiences fluctuations in its income.
Capital supports sensible regulation to ensure that
small businesses are not taken advantage of by Bad actors
any regulation.
Should allow companies like capitis to offer
small businesses the products and the financing necessary
to run their businesses and any such
regulation should seek to create a level regulatory playing
field regardless of the product offered.
This is why capitis has worked with youth center
Sanders to support a bill that would license providers
and Brokers of financing small businesses. This was
in fact the approach taken in California or capitis
has been licensed since 2008.
The attempt of this bill was and remains
to ensure that all entities providing or brokering
financing to small businesses would have
to make certain basic criteria such as the absence of
a criminal background and would have to register with the
Department of Financial Services. This is important so that
DFS can gain an accurate and complete understanding
of the non-bank commercial Finance Market.
In capitis's opinion it is difficult if not impossible for
DFS to regulate an unknown population
of entities without some type of licensure or
registration program. It is unclear how DFS
would even know who was providing commercial financing in
New York or brokering those transactions in New York
something that remains critical as DFS moves
to enforce the regulations implementing the
small business finance disclosure statute sponsored by
Senator Thomas in 2020.
The reason this is important is because unfortunately there are
unscrupulous entities that are taking advantage of small businesses
by for example, charging unnecessary and
inappropriate fees misleading small businesses as
the term as to the terms of the products they offer or
engage in invade and switch tactics.
Capitis initially supported a licensure rather
than a disclosure bill because capitalists believe
that licensure was the first step to protecting these small businesses.
There are two main reasons for this first licensure
protects small businesses on the front end
by ensuring that entities must be certain basic
criteria before being able to offer or
broker financing small businesses. Small businesses
are then assured that they are only interacting with
companies that have met these basic requirements.
Second. It ensures that DFS knows who is providing
or brokering financing to small businesses. This
is essential to provide proper supervision that
is difficult for DFS to
supervise entities. It does not know exist.
Rather than passing a licensure Bill. However, New York passed a
disclosure bill.
Capita still believes that licensure would have made
more sense as a first step but capitis has provided
multiple comments to DFS in an
effort to improve the regulations meant to implement the disclosure
bill.
And capita still believes that legislation is
needed to identify the providers and brokers
who are required to make the disclosures DFS is
implementing whether under your pending legislation or in some
other form again, the goal is to ensure that
the people providing financing to small businesses and acting
as brokers in such transactions meet certain basic
criteria and are known to the DFS. So
these entities can be appropriately supervised. So that
bad actors can be weeded out.
Thank you very much for the invitation to speak here today campus to
continue to support you and your work and
is happy to work with you in the committee to support efforts at
sensible regulation.
Thank you last but never least sir.
Thank you.
Mr. Chair, thank you for inviting me to testify today.
My name is Christopher Grimm and I'm here
on behalf of the Innovative lending platform Association.
Ilpa members provide New York businesses with hundreds
of millions of dollars annually in capital to invest
in their business purchase inventory.
Higher additional hands or upgrade equipment and they
do it with Innovative underwriting and in as little
as 24 hours.
In 2016 ilpa created the first model
disclosure tool Smart Box with Comprehensive pricing
metrics and key financing terms presented in
plain easy to understand language.
We were also the prime proponents of New York's gold standard
commercial Finance disclosure law, which has been
introduced and copied by a number of States since it passed here.
Following the Great Recession small business Capital all
but disappeared.
Only businesses with great risk profiles significant collateral and
existing Bank relationships have access to Capital.
Ilpa members of the fintechs and
Community Development financial institutions are filling that Gap.
In fact a recent study by the Federal Reserve concluded fintex lenders
have a potential to create a more inclusive Financial system
allowing small businesses that were less likely to
receive credit through traditional lenders to access Credit and
do so at a lower cost.
But providing small businesses with capital is increasingly challenging.
Inflation and Rising interest rates have made credit more costly
mortgage rates are now twice as high as they were just a
few years ago.
It's against this backdrop that we have some concerns with Senate
Bill 1450 and the proposal for licensing commercial Finance providers.
First we are concerned that this is pursuing a
one-size-fits-all approach based on an experience
regulating consumer financing.
Commercial financing is a significantly different Market with
different products than consumer financing. They have different
uses and evaluating the risk of a small business is incredibly complex.
Unlike consumer credit where credit scores
are standard risk indicator commercial financing requires
a more comprehensive risk evaluation to capture capture
factors that are unique to small businesses.
A deadly pandemic and you competitor opening down
the street changing suppliers increased costs
from inflation and labor issues can all seriously impact
a small businesses bottom line. And those are all impossible to
predict. That's why 65% of businesses fail during
their first 10 years and only 25% make it
to 15 years or more.
Second while 50 different state licensure requirements may
appear relatively manageable on its face. The truth
is that licensing can be extraordinarily burdensome and costly and
can cause several unintended problems. For example,
Nevada has an extraordinarily complex
licensing structure. They're currently considering a bill
to change that that no one understands watching the
hearing was interesting to see the least
as a result several of our members. Do not currently
operate in Nevada and provide credit small businesses.
However, we understand and appreciate that Regulators
need to know who's operating in their state to enforce existing laws
including the commercial Finance disclosure law.
We believe our registration or a requirement to notify the regulator
DFS of operations in the state through
the Nationwide multi-state licensing system would provide
Regulators with that needed information to enforce the
Law Without creating significant compliance burdens for providers.
Also, I understand the focus. This hearing is on licensing. I
want to take this opportunity to to make this committee aware that
the state's current low commercial usury rate
caps are making it incredibly difficult to provide financing
to small businesses. These caps don't
consider several factors including the recent inflation that I mentioned on Rising
interest rates.
Just last week the president and CEO of the National Association of
federally insured Credit Unions wrote that the
18% cap that's imposed on credit unions is forcing
Credit Unions to reduce services to Consumers and
small businesses in their communities.
An ilp8 member recently reported that New York
for the first time has fallen from fourth in the state to fifth
in originate fourth in the country to fit an origination
volume below, Illinois a state
with two-thirds New York's population, but no usury cap
for commercial financing. We hope that as part of this discussion on
regulating fintech the legislature will consider raising
or eliminating the current usually cap on a commercial financing
aligning with 39 other states that don't impose
these arbitrary caps on Commercial Landing, including California
and Illinois, just a name to do by keeping
the current status in place. The state
will continue to severely restrict access to credit for small businesses and
choke off Economic Development. Thank you, and I'm happy to answer
any questions.
Thank you. Thank you all I have a several questions
and I'm glad I don't have to yield to anyone.
I'll yield to myself. Let me start
with some some basic facts
that.
the
the mwbe community minority women own
business enterprises have found it
very difficult to use to be
fully funded by traditional Banks.
And they have found it easier.
to use fintechs
which has led to
the food the rise of fintex and
in some quarters.
But traditional banks have to use a
CRA. They have a community reinvestment
act that they
have to abide by.
why don't
Why doesn't defend takes create one and
use it themselves?
Food for thought of maybe I think
I think that the advantage of fintechs
a particularly I can speak on behalf of capitis is
the the process of obtaining financing
is is in fact much easier because it
is all online is all the phone.
There's no need to go to a specific bank and the
past panel there was discussion of a bank deserts
deserts or there. No are no opportunities for
people to have traditional commercial opportunities words.
I think we do provide that because you really
just need a phone or a computer to obtain
that financing which I do think it makes it
much more accessible and we
obviously are
doing our very best to make our products available
and accessible to
everyone across all populations
across all
locations Etc. And I do
think the mechanism by which people contact us
to obtain financing actually is very
helpful in that in that regard and the
only additional thing is that I will say is I think as I'm
sure you're aware 1071 is is now in
the spent has been passed and will
be in the
I mean implemented and I think that will be
very instructive in terms of
the statistics being gathered under
that rule
okay, anyone else sure, I just
like to add I'm not as familiar with the specifics
of the community reinvestment act as some other
laws, but as I said earlier in in my
testimony
the
credit gap for small businesses exists partly because
of the regulatory regime that exists on banks right
after the Great Recession credit because Banks
had the more closely managed their risk profile, right
and a lot of that is because they hold customer deposits.
for a non-depository Institution
trying to fit that round peg in a square hole, right. Our our
members don't have customer deposits right? So there's nothing that's at
risk of a run a lot of the things
that we heard in the previous panel. So trying to apply a
regulatory structure that's dealing
with banks and depository institutions doesn't always
apply to non Banks.
Also, just so the way the companies are members work is
you know, we're here to serve the businesses if they want to
have a call at 6 o'clock in the morning. I know somebody from our company is going
to be on the phone with them. You know, we try to work around are at
the business the owners their time instead of the traditional, you know, eight to
four of a bank or something like that because my parents have a
small business everybody, you know, you know that you're never the
days never done so and things come up so we try to
be accommodating for this for those businesses. And so, you know
by being you know, we're phone call away or text
away or an email away. So it's you know, we're trying to
be at the service of you know, those businesses to be at
their disposal at their time what works best for them instead of
being like well you need to come here at this time because this is when we're here, so we're trying to
be more accommodating and cross the board because we know everybody's days different
everybody's schedules different and things come up. So that
is another way that our companies are able to help small businesses being
on their schedule other than being on ours or traditional
bank or something like that.
Will put all can I encourage all of you to
become aware more aware
of CRA Community reinvestment act.
I have recently the credit
unions have
played now playing a larger role in
New York state and I have working with
them to create a CRA for
credit unions and if the
fintechs are going to have a larger role
in New York, I would encourage you to look
at CRA and
what what does it mean?
but I will take you to
Mr. Grimm you spoke you alluded perhaps to
the PPP loans at
the fintechs were able to to give out
one of the studies that came
out from that period was that
in terms of the mwbe community
minority and women-owned business community that
we found two different things first that the
fintechs were more effective in
giving money to the mwbe community
then traditional Banks.
But the Federal Reserve also found that
the satisfaction of the mwbe community
was not very high
and they would have preferred a Traditional
Bank at the at the end. Very interesting.
I I encourage you
to look at it. You also
spoke of these small cap the 18 percent that
New York state has and I
suspect that you would have preferred us to use the
the military model that is out there.
The US military allows of my memory
serves me correct up to 36% or
something of that nature.
I've I'm certainly hearing the
industry and I'm mulling it over and trying
to figure out.
what to do there Miss Holmes
you
you guys have been around since 2006 congratulations.
That's that's in this
day and age. There's something were you
I don't believe the answer is yes,
but were you was your firm ever involved
and cojs certificate of
judgments or any any of those things? I I
have not been there since 2000. Okay, but certainly
as long as I have been there and to
my knowledge the answers that is no we do and we certainly do not do that.
Yes, we're still looking into that
matter to see what we can even
at this late date do about
these things. So I did hear you.
Speak of yes disclosure is
a good thing.
And in addition to disclosure licensing
makes the most
sense people having a license makes
the most sense. I obviously agree with
you I can
say so myself. In fact, I did miss
Pappas you were
speaking of how to
deal with the bad players how
they are Bad actors out here and we
absolutely could use
help in from all of
you in any ideas that you have that can
help weed out this this new
and emerging industry and find ways
of getting the Bad actors. I
have found the industry. I
I don't go to the industry as
and automatic opposition
I go with an open mind saying let's
see if you will give us
ways what how do you believe
We should find these bad players. You may
know the inside situation for
better than we in time. We will learn
it. But you you probably know it
already. Are there any practices Miss Pappas
that we have missed so far in catching up
with the bad bad blood actors?
Um, so like I said, you know, I think licensures one thing
because that way they're on the come. They're on the states radar
in California some of our members my
are my particular company work
for Rapid Finance. We are licensing California, they require and you
are audits. So there are ways that, you
know by licensing that you are able to then look into certain
things to see these practices ask additional questions. There are
some other
Potential ways out there. I know we had
there had been some common letters or back and forth specifically
with certain companies, you know with DFS regarding,
you know, potential additional additions to the regulations that
we think that you know would bring light to small businesses, you know,
potential fees that are being charged. It might not being disclosed, you
know certain other items that are out
there that the you know that these small businesses might not know are
there that might be being charged
separately potentially by a broker or something like that. So
by really just trying to see who's playing who's
participating what's being charged outside of
the provider the you know, thus providing
the commercial financing. I think that's definitely a step in the
right direction because once you understand potentially the whole picture when everybody's involved
and what's specifically going on you can say, oh, well
this seems like a problem. I might have you know, this might not
be something the small business is happening. Maybe we
could go and you know have some type of disclosure there or requirement
there for, you know other aspects of
destroyed
To your right is Paul Alexander from my
office. Can I encourage the three of you? If you
can think of any ways that we can
use to get the Bad actors
out of the industry out from amongst
you please share it with him so that we
can continue be more than happy, too. Thank you, and I
want to thank all of you for appearing today. I
trust it was useful to you because it certainly was useful
to us. Thank you very much, and you
can call the next panel. Thank you, sir. Thank
you for the world.
So approach the case.
Well, Miss Fisher, you picked a bad panel because you're sitting
with Phil goldfedder, and I have to give him a hard time.
So I guess it will be trouble it will be shared with you, too.
Good to see you. I almost said assemblyman. I
still could I still can
nice to see there's a pleasure.
Miss Fisher Mr. Bell a pleasure. Let's see
where you this is such a tough one.
I think that I have Consumer Report go last.
That way you're whatever they say that
it needs for the clarification.
Miss Fisher, I promised that
I would focus on you and I shall
Miss Fisher good to see you you can speak first. Thank you,
Senator Sanders and thank you for the opportunity to be
part of this important hearing on fintech. My name
is Kate Fisher. I'm a partner with a law firm Hudson cook and
I'm here today representing the revenue-based finance Coalition
a coalition of responsible providers of financing to
small and medium-sized businesses Nationwide.
Revenue based financing is fair flexible and
fast.
Revenue-based financing is able to serve businesses where
traditional Banks cannot.
Our financing tends to be between $5,000
and $100,000.
Are underwriting focuses on business Revenue instead
of traditional factors such as assets and
credit scores.
This band's access to capital for minority and women-owned businesses.
a recent study conducted by an NYU Stern
business school professor
found that fintex were able to reach substantially more black owned
businesses than traditional Banks were during
the PPP program.
One reason the study explores is that fintechs were able
to provide smaller dollar financing which tends to
serve smaller minority-owned businesses.
And our focus on Revenue instead of assets aligns
our interest with our customers we do. Well only
when our customers do well.
Revenue-based financing is flexible because our business customers
pay according to a percentage of their revenue.
In a typical scenario a small business may need
$30,000 to expand.
The business could quickly access that $30,000 in
exchange for the promise to pay 10% of its future
Revenue.
Plus until the business
has repaid that $30,000 plus a fee.
There's no interest accruing each day, and there are
no fixed daily weekly or monthly payments.
The business simply promises to deliver that 10%
of each day's Revenue up to the total payment
obligation.
What happens if the revenue drops the businesses payment obligation
drops as well?
What happens if the business has to temporarily close their payment
obligation stops completely until the business
can reopen.
This flexibility provides a kind of economic shock absorber
for small businesses.
And revenue-based financing is fast a business can
obtain needed funds within 24 to 48 hours.
The reason for the speed is that Revenue based financing providers underwrite
based on whether the business's future Revenue
can support the financing amount.
There's no requirement that the business owner put up personal collateral
and generally no collateral at all.
And there is no personal guarantee of repayment.
This fast access to Capital is a critical economic engine for
small businesses.
Before I close I would like to address the issue of Licensing for
fintechs.
We support legislation that keeps out Bad actors and
sets reasonable guardrails.
We also want to protect access to capital for New
York small businesses.
And avoid over regulation.
I have a couple examples of over-regulation from
Senate Bill 1450.
Senate Bill 1450 would require a provider of small
business financing to get Advanced approval from DFS 40
days before changing an office location.
We have member companies located in Utah, California South
Dakota. Should they
be required to ask DFS for permission 45 days
before they moved their office from one location in Sioux
Falls or Salt Lake City to another down the street.
Another example, is that the penalty for a failure to obtain a
license is very harsh.
Senate Bill 450 states that if a
financing provider fails to obtain a license or even potentially
if a broker involved in the transaction was unlicensed.
The entire financing transaction is void and
uncollectible.
This could result in financing providers avoiding New York because the
consequence of accidentally missing the
fact that a broker was unlicensed is too
severe.
A better approach would be to impose a fine for failure to
obtain a license and make it a really defined.
But not make the entire financing obligation
void and collectible.
We would love to work with you to craft legislation that strikes
the right balance. And again, thank you for inviting us
to participate today.
The Honorable, Philadelphia
I'm having a hard time doing this with a straight face here. My friends
Mr. Goldfetter was formerly
an employee of mine a my
stuff people who?
Who decided that he wanted to go to a
larger world. And so he's no longer
on this side is now on this side.
So it's very interesting thing that we we have.
Let's hear how well he does this side feels
different for sure. Well, let me first start by
saying thank you. Thank you for allowing me the opportunity
to break into the big world of politics more than 20 years ago
and free opportunity, which clearly led me here.
And so we both did something right. I want
to start by saying and I before I go to my prepared remarks that
not all fintech has created equal. I think that's the biggest challenge is
that too often times. We we take one
aspect of fintech and we quated across the board and we said
well this aspect did something wrong then it's all bad. It's all and
it all needs to go away. I think most importantly
is we need to recognize that crypto companies
are different than payments companies. We're different lending companies small business
lending companies different than consumer lending companies. Earn way. Jack
says by now pay later and the gamut and so
I think
Think it's number one critically important. We have hearings like this so we
can continue to find ways to educate about the
various not just verticals within fintech but
more importantly the different companies within those verticals some that
accept and take on a standard
and some that don't as you know, and I had the
unique opportunity to serve in the state
legislature and recognizing that it's not about regulation for regulations
sake or bills for Bill's sake it's about crafting the
right regulatory structure together with Partners
in Industry who are looking to create access to
to financial services and access to services for
our constituents. So
Um, I am now representing. I'm the CEO of the
American fintech Council. The American fintech council is
the leading industry Association representing responsible fintech companies
creating critical access to safe and affordable
Financial Services AFC and its members deliver
for customers by Leading and advocating for the next
generation of companies at the intersection of technology and financial services
with many responsibly lending and providing Services
right here in New York. We Foster Innovative transparent and
responsible products that promote competition consumer protection
and Financial Health inclusion sound public
policy and Equity AFC is committed to
robust industry standards with a focus on consumer protection and regular
and Regulatory Compliance.
In addition to advocating for and embracing Fair.
Fair government regulation
AFC members are at the Forefront of flustering competition and
Consumer Finance and pioneering better ways to better pioneering ways
to better serve underserved consumer segments and geographies.
AFC has publicly supported 36% rate caps at
state and federal levels, which is a team component of our advocacy and
of addressing responsible lending. Our members
are also lowering the cost of financial transactions allowing them
to help meet demand for high quality affordable products. Thank you.
Huh AFC supports policymakers regulators and other stakeholders on
solutions to issues that regulators and others have
emphasized throughout public discussions around Financial technology oversight. Our
members are improving products that help Advance Consumer Financial
Health and financial capacity AFC members
are interested in providing more Innovative product products that
address consumer demand without compromising on Regulatory Compliance
or consumer protection, and I'm going to say that again because I
think it's critical AFC members are interested in providing
more Innovative products that address consumer demand without
compromising on regulatory Regulatory Compliance
and consumer protection AFC members
are focused on products that are responsible fair safe and
want to work in partner with federal and state Regulators to
scale responsible options in the marketplace.
The covid-19 pandemic has magnified the
challenges of ensuring the availability of high quality
financial services and products Banking and deserts
and underserved census racks are proliferating and
in thousands of communities across the country Bank branches are
closing at record rates.
With the 2008 banking crisis ingrained in
the minds of New Yorkers particularly and with recent events. We're seeing
again investor panic and unstable markets
indicating a potential banking crisis.
The recent collapse of signature Silicon Valley and silvergate Bank
could be a canary in the colmart for New York Banks particularly those that
are uninsured by the FDIC since those banks are more susceptible to
liquidity and solvency crisis economic downturns
cause every day New Yorkers to suffer their health health
outcomes state of mind and quality of life depend on
functioning Capital markets any plan for New York that does
not include accessibility and comprehensive financial services for
our most vulnerable communities is inadequate and
should not be accepted by policy makers.
Regulated and responsible fintech companies are poised to
leave the future of financial services as we break down the traditional
barriers to Capital and reach families and businesses. Traditionally Left
Behind AFC has long advocated
for regulatory modernization that promotes Innovation, but
also holds innovators accountable to being
responsible and transparent.
We're now at a moment in time. We're modern and
forward-looking Regulatory structures can strengthen Banks and
fintechs that play by the rules and act responsibly.
And with 15 seconds.
Always impressive Mr. Bell
chairman Sanders members of the committee. Thank you
so much for the opportunity to testify. I'm Chuck bowel programs
director or Consumer Reports based in
Yonkers New York. I'm a financial policy advocate
in our New York office. I represent our
positions here in New York state and other Northeastern states.
Um, most of my comments here are really to address fintech
rather than crypto but to summarize we
at Consumer Reports, we are very much
in favor of State oversight and Licensing
for online lending and and
for crypto to the extent that new measures can
be developed to provide for that. We also participate
here in the Coalition called New Yorkers for responsible lending
where I coach here at the consumer and insurance working
group. And in that group, we're quite
concerned with trying to strengthen the general
business law 349 the consumer protection law in
New York state which is not been updated for 40 years. So Senator
Camry has a bill to strengthen that
law strengthen the penalties that are in that bill or in
that law and we think that's one of the best protections we
can provide for consumers is to have a strong General law
where consumers who are harmed by unfair deceptive or
abusive practices have the ability to protect their
rights in court and
services attorneys around the state can help bring actions
on their behalf.
We also were very much in support of
the New York Department of Financial Services proposal couple
years back to expand their licensing of
online lenders in particular because we
as we look at states around the country. We see a lot
of online lending that takes
place extremely high rates. I mean New York is a
non- Payday State there's a over 20
states that have tight user Recaps that don't after eyes
really high interest rates for small dollar
Consumer loans and we think that is a really
good thing. Both at New York is responsible ending and consumer reports for
protecting New Yorkers and particularly vulnerable communities
by having those tight used to
recelings we have we've been
able to attract lenders that are willing to lend under those rates.
We've empowered Credit Unions to make affordable soundly
underwritten small dollar loans, and
we've avoided people getting into the
cycle of recurring
with with payday loans, which we see in so many other states
that is really devastating that can borrowers
can be in debt the entire
year long often forced to borrow money from friends and
family to repay these usurious loans of
you know, 300 400% APR
And often declare bankruptcy,
you know and have their credit damaged as a result. So we
believe that having those Ironclad usury limits
as one of the things that's really done the most to protect
consumers and we've seen regulation wax
and Wayne over the years. I put
some material in my statement about the all
the risks that came out during the financial crisis where many
of our groups had warned the Federal Reserve about
the risks of predatory lending and predatory mortgage lending
how it was harming vulnerable communities and their
Federal Regulators basically field to take action. And
so under down Frank, we got the creation of the Consumer
Financial Protection Bureau and then here in New York
when the Departments of banking and insurance merged. We got a stronger
DFS that has a bureau of financial frauds and
consumer protection and we think enforcement of
our financial laws is a oversight and
enforcement is a joint state federal responsibility right
now. There's a lot of attacks that are coming
The cfpb's funding mechanism. There's a Supreme Court
case from the fifth circuit that's pending that threatens
to disrupt their work. They're doing incredibly
important work and have really improved
the accountability of financial services for consumers.
So we but we do think that the state
Regulators like the attorney general and the DFS are
also essential for filling in gaps and
being able to take action if there are any slow
points and federal action. So for all
those reasons, we've favored the licensing of consumer-facing
lenders one example
of regulatory Arbitrage, which I attached to my statement is we
did a report about these buy now pay later lenders which
the to their credit the cfpb is doing
a lot to investigate and developing some good recommendations for new
protections. But the point is that those lenders are not licensed
in New York state they are licensed in California, California has
somewhat better day data and how they're behaving out
there. We've seen a number of problems with stacking
Multiple loans by some consumers there's some concerns
about whether sound underwriting is taking place. There are
issues with respect to late fees and consumers making
returns and you know getting credits to
their account. So there's lots of
different fintech Enterprises and
startups. I agree. There's tremendous heterogeneous unity
and diversity in the industry and consumers are
well served by having more more options and
more tools. But I think all of these things do need
strong State oversight and we would support efforts
by the DFS and the Attorney General to
expand their licensing of online lending and
in particular the licensing of
crypto exchange. There's bill in California called ab39 which
Consumer Reports is supporting as a way of
getting more State accountability and my boss testified
in favor of creating a regular Federal regulatory
framework for stable coins last week and
I attached her testimony, so we're gonna be
Be working at both levels on this but we
do want to encourage New York state to maintain its vigilance and
it's oversight and we do think it's paid very
rich rewards. Certainly. We have a long way
to go and in getting better Financial access for underserved
communities and and consumers of
color and we want it. We want to get on with that work, but let's
not let's not ease up on the oversight. That's basically our
point of view, Mr.
Mr. Bell your magazine and now
online is held in
high regards throughout the nation and especially
in New York.
One problem that that was brought
up earlier is that credit unions
don't lend to businesses. So
they may not be the most effective vehicle to
Aid the business Community. How would
you address that?
I think that I think there are other companies and
and fintech lenders that can fill
some of those gaps, but my concern is that when you
have high class credit people, you know businesses can
get in the cycle of debt repayment
that they may not be able to handle and that we really do
need to be careful about making sure that the loans are appropriately underwritten
and affordably priced and if
we're not getting that from the private market then there
may be a need for additional sources of credit developed by
the state through other, you know,
like Empire State development or through public banking other
channels, but I think we need to
be careful because I put in my testimony several example of
businesses that became very overextended on high
cost loans and you know, when people are desperate up
in the middle of the night worrying about their inventory and where the
cash is coming from. It's pretty easy to overlook ownerous
terms and there have been owners terms
and lots of small business loans and we can't just
Why on the marketplace to fix that? I think there has
to be oversight and some real guardrails to protect the businesses from
predatory predatory activity before
I turn to Ms. Fisher.
I'm going to ask you one more question sir has
Consumer Report taken
a position on public Banks yet. We were
in support of the public banking bill. I'm going to be coming
back next week to join Community Equity agenda and support
of that. So yes, we do. We do support the New York public Bank bill.
So thank you for your leadership on that.
Thank you, Ms. Fisher the issue
of
The cap has been raised here. Do you
have a position on on I think that you spoke
of?
Well, I'm not sure if it was you who spoke of
the lending cap of New York New York
State. There's the business finance
Coalition have a position on that.
me that
that and we don't have
Position on okay, New York. She's very cap, but I
did if it's okay. I want
to comment on your question. You've had to the other panel about
the community reinvestment act. I it was
I assure you it was covering up but okay. You beat
me to the punch. You're a good Barrister. The community reinvestment
act has the goal of encouraging
Banks to provide Capital to Capital to
underserved communities and it
is perhaps cumbersome and
I think we could do something better. For example
in SB 1450 there
the concept that you've introduced about using some
of the licensing fees to provide grants to
women and minority owned businesses. And
that's an Innovative idea to provide Capital
to underserved communities and and an idea
that we support and we look forward to working with you on on other Concepts.
I like it. I like it.
broker versus in there was a question of
who should
get in trouble if you wish if the
broker is unlicensed and
you did not
want it to be the industry. You felt that
it should be simply the broker should bear
the burden.
Am I phrasing it, right?
there's some distinction so
The issue that I brought up is the penalty for having
the underlying transaction be void and uncollectible.
So for example, New York's
criminal use recap of 25% the the
law in New York is that if alone exceeds that
criminal use recap that loan is void and uncollectible. That's
an appropriate penalty for violating
a law that has significant public
protection.
In my view a licensing requirement,
although it's important is more of an administrative
issue. Right if a loan
is otherwise legal.
But there is someone in the chain who
failed to obtain a license making the
penalty be that the underlying transaction
is void and uncollectible is not to measure
it with the harm the public harm. So in my
view would be a more appropriate penalty to
have a fine assessed, you know
a robust fine. So there is deterrence for
failure to have a license. So I
was more focused on the
Gravity of the penalty commensurate with the
violation of the law. It might be
a good thing as you describe
it if the industry is moving in
good faith. If they are moving to ensure that
the person has a
license if they would taking some action
to ensure that the person had a license
and they moved
in good faith then later on if there
was a problem but to just say
No action by the industry just anyone
coming up and saying I'm licensed I can I
can go perhaps there is some some
room for compromise perhaps if we
can find something that the industry is doing to to
screen out the Bad actors
again and and move forward
so that at least you would be able to say
hey, we we moved in a good manner.
Now don't penalize us.
Perhaps, thank you.
Mr. Goldfeather
Have you considered have you guys considered
public Banks yet?
Is an official position we do not have an
official position again their studies out of Massachusetts and
others that have a very inclusions. We at
the American finta Council don't have a public position, okay.
Public Banks may end up
acting as the like the Veterans
Administration.
I am a vet and I can get a vet
loan to buy a home from the Veterans Administration.
The Veterans Administration does not is not
in the business of giving money.
They don't do that. What they do is
guarantee a certain
percentage of the law.
And under those conditions any worthy
financial institution.
May be the recipient of this.
It need not be simply a brick and mortar the
the attempt by the Veterans Administration. Is
that the vet buys a
home?
And and any worthy
institution may be
the recipient.
Consider considered maybe
if you move on that,
I just want 10% Center. I have friends.
I'm joking. Okay, are you you know fintech came
about as traditional financial institutions exited the
community and what we call dearest post 2008
crisis traditional financial institutions sort
of stepped away. And that's kind of where fintech began members of
ours like Lending Club and prosper sort
of fill the void and consumer, but I want to be clear as I've said before responsible
thing to companies who believe in regulatory structure
many of whom partner with Community Banks
to provide access to credit the idea that we
have to incentivize Banks to make loans to people who need them
is astonishing in today's day and age
and that's kind of where fintech steps in but again, I can't
say this emphatically enough responsible fintech companies who
recognize their responsibility not just as
a business but to consumer protection and Regulatory Compliance, and
those are the kind of companies that we represent.
Are confintech Council and those that as we
continue to evolve in these nascent Industries, we don't
do it blindly for profit sake but we do it with a focus on
there's a consumer that needs the access to
credit.
The question becomes and as we were talking about usury caps, how
do you balance?
Access to credit with responsible usually limits and
responsible regulatory oversight. I think that's the balance that we try to
face.
The federal government and the military Lending Act to set that
at 36% We recognize that as the
standard at the federal government. We're we're I want
to the American fintech Council Embraces state regulatory structures
the challenge for fintech companies that operate in a
Nimble fashion is trying to keep up with 50 state
Patchwork of regulatory oversight and that's where it gets
a little tricky for the fintech companies. But again stand at the
ready to work with every state as we are here today and in Colorado
and States across the country to find the right
balance to create access to credit credit where traditional
banks are pulling away. I mean we're Community Banks
are closing at the fastest clip in history particularly in
minority and Rural communities. And so that's where
fintech steps up to to help those
who are disproportionately being underserved by traditional institutions.
Mr. Bill
the fintech stepping up to serve in
these communities. Why do you have a problem with
their 36%
Oh well because suggested 36% Yeah,
I mean, we we believe in tight user
caps because we want loans to be affordably priced and
when loans are aggressively priced by companies that
maybe located, you know halfway across the country. They're not
really operating in the interest of the New York consumer by
charging those really sharp interest rates.
So we believe we can develop other mechanisms to make
sure that people can get credit that's affordably priced one
example of something we're really concerned about
is there's these earned wage payroll
advance programs that are operating
summer integrated with employer payroll some
are third party Standalone fintech apps
and some of those companies are now seeking an exception
from the New York usury limit law
to give payroll advances. These are
very short-term loans of like five days or less than two
weeks. But according to data that's just come out
from the California Department of Financial Protection and innov
And the APR of value of the fees that
are being charged is as much as 360% So
that's an example of something like
we don't want to see workers in New York having to pay
extra fees to get access to their wages if we
can accomplish having faster payments through financial
technology. We're all for that but
we don't want to have consumers at the end of the year paying hundreds
and hundreds of dollars of fees to get access to their wages and
having those programs carved out from the usury laws
would set a bad precedent for other high cost lenders.
So this can quickly get out of control
when someone says, you know, you gave that company and exception
to the use of your limits. What about us? And this is
what we heard a lot in 2017 and 18 and
consumers will get behind on their
loans. I mean the cost of living in New York is very high. It's
expensive to get child care and I
don't insurance pay for car all these different things that you need. So we
got to make sure that credit is affordably price.
Think New York has done a good job on that over the years but we can
do better through things like public Banking and
Community Development financial institutions, which can
give soundly underwritten small business loans and
work with the owners. So we want to use those, you know
have kind of a mixed economy. We don't have to get rid of commercial actors
all together. But like let's say let's have some options
for people that are affordably priced. That's our point of view.
Improvement since the Senate has not
been paid from April the
first we all may be driven to short-term loans,
since you are my last
panel. I'm going to allow you 30 seconds
as a summation to sum it
up. And of course you're going last Mr. Bell.
Madam Fisher
Thank you. I use my come little
closer. All right.
I use my 30 seconds to again. Thank you
for this opportunity. And again, the
revenue-based finance Coalition is really looking forward to working with
you to discuss reasonable
legislation to weed
out the Bad actors set up guardrails and preserve
access to capital. Thank you.
Thank you, sir. Thank you. Thank you Senator. And
as I mentioned before, you know, responsible finta companies
tend to provide those services for
traditional Financial companies have stepped away. But again when acting
responsibly and I think the biggest challenge for fintech
companies is regulatory uncertainty, right? We don't know how to operate in
which state we go to what are our limits. How do we do
it and creating, you know, it's easy to say we again the
patch where the 50 state Patchwork creates real
challenges for our ability to offer that access to credit
and that's what it comes down to when it comes on when it
comes to lending is is a access to credit at
a reasonable price with reasonable terms that are transparent. We're
all used to the idea of if you want to say 15% today
on your purchase by signing up for our credit card, right that's becoming grained in
kind of us as a society, but we don't know how much
you're gonna pay. We don't know what their credit terms are. Like, we don't know what
the interest rates are and we all accept like, oh, I'll do that today and I'll
sign up for that credit card and you look at companies like a firm which is
the opposite they set up their program not to avoid
Regulatory structure, but they set up their four payment process to
embrace that this is a loan. This is how much
you're going to pay. This is what your interest rate is. And by the time
you walk out of the store, you know, how many months you're gonna have to pay, you know,
how much it's going to cost and you have a pathway out
and the best part of that is if you take that loan and
you proceed through it safely and honestly your credit's
going to improve and so it actually is a pathway out
of debt versus the the credit card industry, which
we've accepted as sort of a recycling of debt, which
has been mentioned a number of times and so that's what fintech is able to do when operating
responsibly with a regulatory structure that works.
Well said sir, thank you. Well, I think
the three Cardinal principles of financial regulation are safety
soundness and consumer protection and what
we've seen happening with crypto in
the last year or two is highly concerning in that I
believe that there is 3.27 billion
in crypto scams in 2022 alone.
And so consumers don't expect
that level of Fraud and deception to
be taking place in the economy and the safety and
soundness of the financial institutions is also, you
know enjoined or brought up by the recent bank
failures. So safety and soundness are incredibly important.
I think we all can agree on that. And so we really want
to make sure that the New York DFS and the Attorney General have
the resources and the authority that they need to
protect New Yorkers and we at
New Yorkers for responsible lending, you know one is stand by their side
for that but with crypto I think we have a
special challenge. It's a new
A new technology that's kind of a right. There's a
lot of regulatory uncertainty the SEC is doing a
lot but there's a lot more that we need to do to protect people against
the possible and unreasonable risks. So
we look forward to working with Banking Committee
as those issues may come up in the future.
Thank you. My friends. I really appreciate everyone
here and in the virtual world
it that has taken their
time to hear this very important
issue. We are going to stay
on this issue for a little bit. We're going
to we we have not
mind the market here. Well, there's more
data mining that we will have to do on cryptocurrency
and others.
We're going to in the
days to come we're going to look at the what impact
did cryptocurrency have
on any bank failures that
have been taking place. We're going to look at that. We
whole our responsibility
as the chair of banking
very seriously a lot has gone on in
the banking world of New York state in the
last six months and the last three months and we
will try to find out
what's going on. And where are we
going with this and with that
as a as a direction this
these panelists have
Laid the foundation of the conversation they have
laid down the foundation of what is
cryptocurrency. What is fintech? What
are these things? And so that
we will have a better understanding when we when we
go just a little further. I want to thank my staff
for putting this together. They did
the hard work and I want to thank all of my other colleagues,
of course, you may remember these great
days Mr. Gofetter. We this is
the budget season and everyone is
in different rooms huddled.
Around what I that fully sure, but they're huddled
nonetheless and in great things
will come from it. Great things will come from it. I don't
know what those things are right now. I've
been here.
But we are we're going to
do I want to thank you Miss Fisher. I trust it wasn't
as unpleasant. It was better than
a root canal. I trust.
Somewhat just a little bit. Yeah, I'm
in a good mood. So you get away easy today sir.
And we always have to have you back Mr. Bell.
You guys really are doing some
great work. So to everyone here. I think
I think let's see. I didn't I think the leader again.
She is the one who authorized these
this hearing and others my staff.
And to oh, yes, the audio-visual team here.
I really appreciate that you you've
tried very very hard and if
And if I didn't come across well, it's because I
didn't understand which one of these to work on. So I
I appreciate I'll take the weight having said
that my friend we have stayed a little longer than
we thought but I trust it was worth it
to you. It was very much.
Worth it to on behalf of my colleagues.
Worth it to us. This hearing is now
adjourned. Thank you very much.