U.S. GOVERNMENT PUBLISHING OFFICE

54–315 PDF WASHINGTON : 2024

MODERNIZING FINANCIAL SERVICES 

THROUGH INNOVATION AND COMPETITION 

HEARING 

BEFORE THE

SUBCOMMITTEE ON DIGITAL ASSETS, 

FINANCIAL TECHNOLOGY, 

AND INCLUSION 

OF THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED EIGHTEENTH CONGRESS 

FIRST SESSION 

OCTOBER 25, 2023 

Printed for the use of the Committee on Financial Services 

Serial No. 118–50 

( 
(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

PATRICK MCHENRY, North Carolina, Chairman 

FRANK D. LUCAS, Oklahoma 

PETE SESSIONS, Texas 

BILL POSEY, Florida 

BLAINE LUETKEMEYER, Missouri 

BILL HUIZENGA, Michigan 

ANN WAGNER, Missouri 

ANDY BARR, Kentucky 

ROGER WILLIAMS, Texas 

FRENCH HILL, Arkansas, Vice Chairman 

TOM EMMER, Minnesota 

BARRY LOUDERMILK, Georgia 

ALEXANDER X. MOONEY, West Virginia 

WARREN DAVIDSON, Ohio 

JOHN ROSE, Tennessee 

BRYAN STEIL, Wisconsin 

WILLIAM TIMMONS, South Carolina 

RALPH NORMAN, South Carolina 

DAN MEUSER, Pennsylvania 

SCOTT FITZGERALD, Wisconsin 

ANDREW GARBARINO, New York 

YOUNG KIM, California 

BYRON DONALDS, Florida 

MIKE FLOOD, Nebraska 

MIKE LAWLER, New York 

ZACH NUNN, Iowa 

MONICA DE LA CRUZ, Texas 

ERIN HOUCHIN, Indiana 

ANDY OGLES, Tennessee 

MAXINE WATERS, California, Ranking 

Member 

NYDIA M. VELA ́ ZQUEZ, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

DAVID SCOTT, Georgia 

STEPHEN F. LYNCH, Massachusetts 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

JIM A. HIMES, Connecticut 

BILL FOSTER, Illinois 

JOYCE BEATTY, Ohio 

JUAN VARGAS, California 

JOSH GOTTHEIMER, New Jersey 

VICENTE GONZALEZ, Texas 

SEAN CASTEN, Illinois 

AYANNA PRESSLEY, Massachusetts 

STEVEN HORSFORD, Nevada 

RASHIDA TLAIB, Michigan 

RITCHIE TORRES, New York 

SYLVIA GARCIA, Texas 

NIKEMA WILLIAMS, Georgia 

WILEY NICKEL, North Carolina 

BRITTANY PETTERSEN, Colorado 

MATT HOFFMANN, Staff Director 
(III) 

SUBCOMMITTEE ON DIGITAL ASSETS, 

FINANCIAL TECHNOLOGY, AND INCLUSION 

FRENCH HILL, Arkansas, Chairman 

FRANK D. LUCAS, Oklahoma 

TOM EMMER, Minnesota 

WARREN DAVIDSON, Ohio, Vice Chairman 

JOHN ROSE, Tennessee 

BRYAN STEIL, Wisconsin 

WILLIAM TIMMONS, South Carolina 

BYRON DONALDS, Florida 

MIKE FLOOD, Nebraska 

ERIN HOUCHIN, Indiana 

STEPHEN F. LYNCH, Massachusetts, 

Ranking Member 

BILL FOSTER, Illinois 

JOSH GOTTHEIMER, New Jersey 

RITCHIE TORRES, New York 

BRAD SHERMAN, California 

AL GREEN, Texas 

SEAN CASTEN, Illinois 

WILEY NICKEL, North Carolina 

(V) 

C O N T E N T S 

Page 

Hearing held on: 

October 25, 2023 ............................................................................................... 1 

Appendix: 

October 25, 2023 ............................................................................................... 35 

WITNESSES 

WEDNESDAY, OCTOBER 25, 2023 

Kelley, Jodie, Chief Executive Officer, Electronic Transactions Association 

(ETA) ..................................................................................................................... 5 

Lenz, Jimmie H., Director, Master of Engineering in Financial Technology, 

Duke University; and Principal, Frontier Foundry-Advanced Research and 

Financial Services ................................................................................................ 6 

Palaniappan, Ram, Founder & CEO, Earnin ........................................................ 8 

Sanz, Parris, Executive Vice President, General Counsel, and Head of Policy 

and Government Relations, WebBank ............................................................... 9 

Spotser, Mitria W., Vice President and Director of Federal Policy, Center 

for Responsible Lending (CRL) ........................................................................... 11 

APPENDIX 

Prepared statements: 

Kelley, Jodie ...................................................................................................... 36 

Lenz, Jimmie H. ............................................................................................... 50 

Palaniappan, Ram ............................................................................................ 55 

Sanz, Parris ....................................................................................................... 62 

Spotser, Mitria W. ............................................................................................ 80 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Hill, Hon. French: 

Letter from the American Fintech Council to the Center for Responsible 

Lending and the National Consumer Law Center, dated October 23, 

2023 ................................................................................................................ 86 

Steil, Hon. Bryan: 

Innovative Payments Association (IPA) press release, ‘‘IPA Supports Introduction of New Earned Wage Access House Bill Sponsored by Representative Steil,’’ dated October 25, 2023 .................................................. 93 

Letter from 119 labor, civil rights, consumer, legal services and community groups and academics opposing the Earned Wage Access Consumer Act ...................................................................................................... 96 

Kelley, Jodie: 

Written responses to questions for the record from Representative 

Waters ............................................................................................................ 103 

Lenz, Jimmie H.: 

Written responses to questions for the record from Representative 

Waters ............................................................................................................ 105 

Palaniappan, Ram: 

Written responses to questions for the record from Representative 

Waters ............................................................................................................ 107 

Sanz, Parris: 

Written responses to questions for the record from Representative 

Waters ............................................................................................................ 109 
Page

VI 

Spotser, Mitria W.: 

Written responses to questions for the record from Representative Steil ... 110 

Written responses to questions for the record from Representative 

Waters ............................................................................................................ 115 
(1) 

MODERNIZING FINANCIAL SERVICES 

THROUGH INNOVATION AND COMPETITION 

Wednesday, October 25, 2023 

U.S. HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON DIGITAL ASSETS, FINANCIAL TECHNOLOGY, AND INCLUSION, COMMITTEE ON FINANCIAL SERVICES, Washington, D.C. 

The subcommittee met, pursuant to notice, at 10:07 a.m., in room 

2128, Rayburn House Office Building, Hon. French Hill [chairman 

of the subcommittee] presiding. 

Members present: Representatives Hill, Davidson, Rose, Steil, 

Timmons, Flood, Houchin; Lynch, Foster, Gottheimer, Green, 

Casten, and Nickel. 

Chairman HILL. The Subcommittee on Digital Assets, Financial 

Technology, and Inclusion will come to order. 

Without objection, the Chair is authorized to declare a recess of 

the subcommittee at any time. 

Today’s hearing is entitled, ‘‘Modernizing Financial Services 

Through Innovation and Competition.’’ 

I want to thank our great panel of witnesses for being here. 

And I now recognize myself for 4 minutes to give an opening 

statement. 

Having used an extensive amount of time over the last few 

months to work in a bipartisan fashion to craft digital assets bills— 

one on payment stable coins and the other on taking hearings and 

crafting a regulatory framework for digital assets—I am excited 

that the subcommittee has come together today to explore financial 

technology issues more generally, which is a major focus of this 

subcommittee. 

Since our task forces that Mr. Lynch and I were involved in back 

in 2018 and 2019, on fintech and on AI, today we want to continue 

that broad foundation regarding the state of fintech today, and specifically, the innovative products and services that financial technology enables for our consumers. 

My goal is for Members to use the time to better understand the 

fintech ecosystem and its evolution from, when we were together 

4 and 5 years ago, disruption, to much more of a sense of collaboration, and how it can deliver products and services that consumers 

want and can benefit from, and the policy questions that we should 

be thinking about as lawmakers. 

At a time when there are so many exciting new technologies, like 

digital assets, quantum computing, and the greater use of artificial 
2 

intelligence (AI), it is important to remember that innovation and 

technology have always been at the heart of financial services. 

That is true even of the humble ATM, which changed the way we 

thought about cash and credit, how we pay for things, and how we 

have had access to money over the past 50 years—to access that 

cash whenever we wanted it, whenever we needed it. And that was 

no small feat back in that 50-years-ago timeframe. 

But like the ATM, I believe that fintech today has the potential 

to drive even greater innovation in financial services, while also delivering even more customer-centric experiences based on trust, 

convenience, and service in an increasingly-digital world. For example, Earned Wage Access products allow people, as the name 

suggests, to access their wages as they earn them. This can give 

people flexibility and liquidity to meet short-term credit needs, for 

example, when a bill is due next week but payday isn’t until the 

end of the month. 

The same goes for bank-fintech partnerships, a great way that 

community banks in Arkansas are meeting customer demand 

through new products and services at a scale through white-label 

offerings. Or Buy Now, Pay Later (BNPL) products, like the old 

layaway systems, which many of us grew up with. This gives consumers a technological way to have a choice at checkout and more 

flexibility to pay on their own schedule in a way, that they can easily understand. 

The massive rise in popularity of these kinds of financial products demonstrates that consumers already recognize how these innovations are improving their lives. However, changes driven by 

technology also merit thoughtful consideration of how they affect 

existing laws and regulations, particularly if laws and regulations 

inhibit that innovation. 

The key is that we have balance between both consumer protection and innovation. And that being said, I think the benefits of 

fintech firms and the products and services they provide far exceed 

the risks that they might pose. And that is why I am excited about 

the bills attached to this hearing that talk about our regulators, 

the sandbox innovation centers in our regulators, and their evaluation of their own technological prowess. 

So today, we look forward to hearing from our excellent witnesses about fintech and how it innovates innovative financial 

products and services that consumers want, and what lawmakers 

should be thinking about to make sure we get that balance between innovation and customer protection just right. 

With that, I yield to the ranking member of the subcommittee, 

my friend from Massachusetts, Mr. Lynch, for 4 minutes for an 

opening statement. 

Mr. LYNCH. Thank you, Mr. Chairman. 

And I want to thank our panel of expert witnesses for coming before the committee and helping us with our work. 

I also want to recognize Lacy Clay, a continued friend, and 

former Member, who is here from Missouri, and I want to thank 

him for his great service to this committee and to Congress in general. Welcome back, my friend. 

Before we begin discussing fintech and Buy Now, Pay Later, I 

would like to acknowledge that the House still does not have a 
3 

Speaker. And while I appreciate the relentless drive that the chairman has in continuing with our work, I don’t want to pretend that 

this Congress is functioning, because it is not. 

And I think, in a sense, to go about committee work sort of business as usual feels inappropriate and tone-deaf to the larger, global 

situation. When you think about the attention we could be spending in focusing on the situation in the Middle East, or in Ukraine, 

or on other very, very important and urgent matters here in Congress and in our own country, we do not have a Speaker. 

I would just suggest to my colleagues that that should be job one, 

and we should not divert any energy or attention away from getting a Speaker so this government can begin to function again, because we are not. 

And even though there are bills attached to this hearing, they go 

nowhere without a Speaker. 

So, I just implore my friends on the other side—and I do have 

friends on the other side, and the chairman is one of them—that 

we redouble our efforts to try to get this government back on track, 

because we are losing the faith of the people that we represent. 

And we are losing face with and the confidence in our international 

neighbors. 

Every day that this House of Representatives goes without a 

Speaker, we are diminished in the eyes of the world and of the people we have an obligation to represent. We are not representing 

them today. We don’t have a Speaker. We are dysfunctional, and 

we are not fulfilling our oaths of office to those very people who 

supported us to take these positions. 

We are in the midst of two wars, and as policymakers, we have 

a responsibility to address the current situation. And while I remain engaged and interested in this topic before us, it pales in 

comparison to the lives being lost as we speak. 

For several weeks, we have waited for my friends on the other 

side of the aisle to move forward with a Speaker. Instead, they 

have played their own internal politics and put that forward and 

put that ahead of the people that we are here to represent. 

So, I simply urge my colleagues to end this mess and begin governing as we were elected to do. 

Now, with respect to the subject matter that is before us, I believe technology does have the potential to lower costs and improve 

accessibility for those left out of the traditional financial services 

sector. However, while remaining interested and really believing in 

the potential of fintech and Buy Now, Pay Later products, I want 

to say that some of these are simply repackaged versions of traditional finance, but packaged in a way to evade laws and regulations under the claims of innovation. 

Simply put, all fintech and Buy Now, Pay Later is not equal. 

Some of them, I think, are making honest and deliberate efforts to 

reach the unbanked, to save consumers cost, and to reduce the friction in the traditional system. 

But in November of 2021, as Chair of our Fintech Task Force, 

I held a hearing that examined fintech liquidity products, such as 

Buy Now, Pay Later, Earned Wage Access, and overdraft avoidance 

products. The emergence of these products raised larger questions 
4 

about consumers’ need for liquidity and whether consumers make 

enough to afford those necessities. 

With the rising interest rates that we have in the country now, 

we are seeing greater problems, greater default rates, and other 

issues that amplify the problems in this area. So, I question whether these products are truly innovative, as industry may claim, or 

just redesigned for regulatory evasion. 

With that, I appreciate your courtesy, Mr. Chairman, and I yield 

back. 

Chairman HILL. The gentleman yields back. 

I am going to yield to the gentleman from Massachusetts, Mr. 

Lynch, the time of Full Committee Ranking Member Waters. 

Mr. LYNCH. A report from California’s Department of Financial 

Protection and Innovation found that fees averaged on APR are 

more than 300 percent. Additionally, I don’t believe that consumers 

should have to pay to access wages that they have already earned 

in that system. 

The Consumer Financial Protection Bureau (CFPB) has issued 

guidance that cautions against Buy Now, Pay Later products, and 

several State regulators have opened investigation into whether 

Earned Wage Access and overdraft avoidance companies break 

State lending laws. 

And lastly, we are seeing a trend towards fintech players 

partnering with small, online banks to conduct bank-like activity. 

This raises questions as to whether fintech companies are using 

bank partnerships to evade State laws. Regulators have raised numerous red flags about the fair lending and consumer protection 

practices of these banks. 

In closing, while consumers do have a true need for liquidity, 

products that are seemingly lower cost but do not comply with 

lending laws are not the answer. As policymakers, we should be exploring true innovative approaches to improving access to credit 

and financial services products. 

I look forward to hearing from our witnesses on what they view 

as innovative approaches. 

And I yield back. Thank you, Mr. Chairman. 

Chairman HILL. I appreciate the ranking member’s opening 

statement. 

Today, we welcome the testimony of Jodie Kelley, the chief executive officer of the Electronic Transactions Association; Jimmie 

Lenz, the director and master of engineering in fintech at Duke 

University, and managing principal of Advanced Research and Financial Services at the Frontier Foundation; Ram Palaniappan, the 

founder and CEO of Earnin; Parris Sanz, the executive vice president, general counsel, and head of policy and government relations 

at WebBank; and Mitria Spotser, the vice president and director of 

Federal policy at the Center for Responsible Lending. 

We thank each of you for taking the time to be with us this 

morning. Each of you will be recognized for 5 minutes to give an 

oral presentation of your testimony. And without objection, each of 

your written statements will be made a part of the record. 

Mrs. Kelley, we are going to start with you. You are recognized 

for 5 minutes. 
5 

STATEMENT OF JODIE KELLEY, CHIEF EXECUTIVE OFFICER, 

ELECTRONIC TRANSACTIONS ASSOCIATION (ETA) 

Mrs. KELLEY. Thank you. 

And good morning, Chairman Hill, Ranking Member Lynch, and 

members of the Subcommittee on Digital Assets, Financial Technology, and Inclusion. 

My name is Jodie Kelley, and it is my privilege as CEO of the 

Electronic Transactions Association (ETA) to speak with you today 

about how the payments technology industry is powering the U.S. 

economy, helping consumers and small businesses, and fostering financial inclusion through the deployment of innovative, secure, and 

cost-effective products and services. Each year, ETA members process more than $44 trillion in purchases worldwide. The payments infrastructure is sophisticated, secure, and fast, processing hundreds of thousands of transactions a 

minute and using cutting-edge technology to do so securely. 

ETA members are committed to providing consumers, including 

historically-underserved Americans, with payments choice and 

choices that are secure, widely accessible, easy to use, and affordable. I would like to take a moment just to highlight a few of those 

products. 

We are all familiar with credit and debit cards which are used 

for the vast majority of transactions in this country. Credit and 

debit cards are accepted virtually everywhere, are easy to use, and 

provide zero liability protection for fraudulent transactions. 

Prepaid products also provide cost-effective and convenient payment options for millions of consumers. And the utility of prepaid 

cards was never clearer than during the COVID-19 pandemic, 

when ETA members helped Federal and State Government agencies deliver billions of dollars in benefits, including on prepaid 

cards. 

Prepaid cards are also particularly helpful for consumers with 

limited or no access to other financial services—9 out of 10 

unbanked Americans use prepaid cards for core financial functions, 

including paying bills or receiving income. And given their utility, 

numerous Federal and State Governments deliver benefits through 

prepaid cards every day. 

Digital payments are also widely used. Peer-to-peer payment 

(P2P) services allow people to quickly make payments to friends 

and family, usually for free, using apps online or on mobile phones. 

And digital wallets store payment credentials, such as credit, debt, 

and prepaid cards, that can also be used to make secure purchases 

in person or online. 

There are also digital products for consumers who transact in 

cash, that allow them to order a product online, then take a QR 

code to a local store and complete the purchase with cash. And 

similarly, many P2P solutions allow cash-based consumers to load 

their P2P account on their mobile phone by presenting cash to a 

local retailer. 

And finally, Buy Now, Pay Later allows consumers to purchase 

an item without paying the full price upfront, with payments made 

through, typically, four cost-free installments. These products serve 

all consumers, including historically-underserved consumers, by 

providing them with an interest-free option to purchase the items 
6 

they need, when they need them. These products are convenient, 

they are simple, and consumers are adopting them at a record 

pace. 

In addition to benefiting consumers, these payment options also 

help small businesses to thrive. And, again, this was highlighted 

during the pandemic, when in-person shopping was dramatically 

reduced and small businesses were at risk. 

The payments industry helped small businesses adapt by establishing global online presences, accepting payments online, or by 

tapping to pay, which allowed many small businesses to remain in 

business. And that innovation continues as new technology now 

helps merchants to receive funds quicker and to access much-needed capital. 

I would like to conclude today by discussing how ETA and policymakers can continue to work together to ensure that high-quality 

and affordable payments are accessible for all consumers. But first, 

I think it is important to note that the payments fintech industry 

is already subject to a comprehensive legal and regulatory framework which has been supplemented through robust self-regulatory 

efforts, including security standards. 

At ETA, we support policies that provide certainty, engender 

trust, protect consumers, and encourage innovation. To that end, 

we encourage policymakers to advance policies that are technologyneutral, principles-based, and allow for industry-led standards, and 

use the, ‘‘same activity, same risk, same regulation,’’ framework. 

As the industry continues to evolve, it is imperative that the policy framework protects consumers while encouraging continued 

progress. 

At ETA, we are proud to represent the payments technology industry. On behalf of the industry, I want to thank you for the opportunity to speak with you today, and I look forward to answering 

any questions you may have. 

[The prepared statement of Mrs. Kelley can be found on page 36 

of the appendix.] 

Chairman HILL. Thank you, Mrs. Kelley, for your testimony. 

Dr. Lenz, you are now recognized for 5 minutes for your oral remarks. 

STATEMENT OF JIMMIE H. LENZ, DIRECTOR, MASTER OF ENGINEERING IN FINANCIAL TECHNOLOGY, DUKE UNIVERSITY; AND PRINCIPAL, FRONTIER FOUNDRY-ADVANCED RESEARCH AND FINANCIAL SERVICES 

Mr. LENZ. First, let me thank you all for having me here. Chairman Hill, Mr. Lynch, it is really a pleasure to be with such an esteemed group of my colleagues up here. It is great to have this opportunity. 

As you mentioned in your opening comments, I am currently at 

Duke University. I lead the master of engineering in financial technology. I also have another role where I lead a team in advanced 

research and financial services for Frontier Foundry, and that company works directly in industry. 

My roots in this industry go back about 35 years. I actually 

checked with the Financial Industry Regulatory Authority 

(FINRA), my broker check, to see when I was first licensed, and it 
7 

was in 1985, which I am guessing is before a lot of you were born, 

but I have been in financial services that long. And my career in 

financial services has been defined by innovation. 

When I started, there were no laptops or computers on desks. 

Exchanges were still open outcry. There was not a lot of technology, but it was coming, and that is what has kind of brought 

me to where I am today. 

I have seen innovation do so many things to the industry, and 

to finance in general, and what that has meant for consumers is 

huge. When I started, spreads on stocks were 12.5 cents, an 8th, 

often 25 cents, 50 cents. Now, typically a penny. Everything is 

transparent. You can do everything online. 

And how did that come about, online trading, online banking, online access? Well, innovation. And sometimes, innovation comes 

from areas that people don’t expect. I know that most people, when 

they think innovation, they think about the big players—big banks, 

big brokerage firms. 

But the first bank to put accounts online was a small community 

bank in Knoxville, Tennessee. The first bank to give folks access 

to their accounts, Presidential, and then, Stanford Federal, were 

small players. 

Mr. Hill, you mentioned ATMs. They weren’t invented by a big 

bank; it was a Scottish engineer, who sold it to a big bank. 

Those kinds of developments are directly beneficial to consumers 

at the end of the day. And while we think about innovation in 

terms of big, big financial institutions, at the end of the day, these 

trickle down to consumers. They mean access, they mean price advantage, and they mean transparency. 

Are there risks involved? Absolutely. I have spent my career basically looking at risks. I was a trader on the electronic and algorithmic side, I ran a trade desk, I ran a brokerage firm, and I was 

a chief risk officer of one of the largest brokerage firms in America, 

along with a chief credit officer. 

Did I care about risk and did I think about it? Every single 

minute of every single day. But risk is what we do. It is inherent 

to the business. It is inherent to what I think is the financial system in the United States. 

With innovation comes that, but you don’t get that tradeoff. You 

can’t have no-risk situations and still move ahead. Everybody 

needs to take a little bit of risk. It needs to be measured. It needs 

to be quantified. It needs to be well understood. But remember, 

when you eliminate risk from any equation, you also eliminate reward. There is a reason we call the risk-free rate of return the lowest rate you can get, and I think sometimes that is forgotten. 

The other thing I think that sometimes doesn’t boil up is the fact 

that innovation doesn’t happen in a vacuum. Sometimes there are 

failures, and it actually happens more often than not. In fact, one 

of the things I tell my colleagues and my students is if you are not 

failing on a pretty regular basis, you are not trying hard enough. 

And I think as we go forward, as we think about innovation, in 

particular in financial services, we need to be very mindful that it 

does come with some tradeoffs. Are there going to be risks present? 

Absolutely. Should they be well understood? Absolutely. But options are always a positive thing, and more options are better. 
8 

Thank you very much for the time. 

[The prepared statement of Dr. Lenz can be found on page 50 of 

the appendix.] 

Chairman HILL. Thank you very much, Dr. Lenz. 

Mr. Palaniappan, you have 5 minutes for your oral remarks. 

Thank you for being here. 

STATEMENT OF RAM PALANIAPPAN, FOUNDER & CEO, EARNIN 

Mr. PALANIAPPAN. Chairman Hill, Ranking Member Lynch, and 

members of the subcommittee, thank you for inviting me to testify 

today on modernizing financial services through innovation and 

competition. 

My name is Ram Palaniappan. I am the CEO and founder of 

Earnin, a company focused on improving the financial health of our 

customers by giving them more control and choice over their finances. 

Our primary product, known as Earned Wage Access, or EWA, 

addresses the problems caused by the archaic and rigid system of 

fixed paydays. Two-thirds of our country lives paycheck to paycheck, and much of their lives revolve around waiting for payday. 

With EWA, workers can access the money that they have already 

earned without waiting for payday. 

Around 2 million people use our product: retail workers, teachers, nurses, and even government employees, such as TSA agents 

and over 100 congressional staffers. Today, there are also several 

other companies that offer similar EWA products. 

I would like to tell you about how Earnin started. I didn’t set out 

with the intent to start a company. I was working at another company, and there I heard that some of my employees were running 

into overdrafts. And I spoke with one of them. I was surprised because I thought we were paying everybody well, so I spoke with one 

of them. 

The problem that she had was she needed money the next day, 

couldn’t wait till the following payday, and it was already halfway 

through the week. So, I said we would pay her for the days that 

she had already worked, but I couldn’t make the payroll system do 

that, so I gave her the money that she had already earned, and we 

settled it on payday. 

And I continued doing this in person for a handful of people for 

about 4 years. Then, I left the company, and they wanted to know 

if I would still do it for them. And I didn’t mind doing it. These 

were people whom I had seen in the office for years. 

At first, I did this over Instant Messenger, and that was not very 

convenient, so I built a web form. When I had this web page up, 

people whom I didn’t know tried to use the product, and I did it 

for them as well. And what I realized was that when you give 

someone access to the money that they have already earned, when 

they need it, their life is much simpler. They are paying all of their 

bills. The bills are not piled up on payday with late fees. There are 

no more overdrafts, no more expensive loans, and that is when I 

realized that if I didn’t try to make this into a product, I would always feel bad about myself. 

We now do this at scale. Every month, over a million people use 

Earnin to pay their rent on time, to buy gas to get to work, and 
9 

to buy groceries. And by accessing their wages when they need it, 

our customers are avoiding over a billion dollars a year in overdraft 

fees. 

The benefits of EWA are not just financial. I met with one of our 

customers in Columbus, Ohio. She works at a hospital, and her 

daughter has a passion for dance. And she was telling me that she 

needs to pay for the dance classes upfront at the beginning of the 

month, and if not for our app, she wouldn’t have been able to do 

that. To me, it is amazing that through our app, her daughter is 

able to pursue her passion for dance and participate in dance competitions. 

If we want more financial access, if we want more financial inclusion, then we need new financial products. If we need financial 

products to work, we need innovation and the right regulatory 

frameworks for them. EWA is one of the innovations that provides 

a great option for people who do not have any good ones, but it 

does not fit well into existing regulatory frameworks. 

The Consumer Financial Protection Bureau (CFPB), under Director Cordray, exempted EWA from the payday rule, and in recent 

budget proposals, the Biden Treasury Department has said that 

on-demand pay arrangements, a common term for Earned Wage 

Access, should not be considered loans for tax purposes. We agree, 

and think EWA needs its own regulatory framework. EWA solves 

problems in a unique way, with much-needed consumer protections. 

Last year, Treasury Secretary Yellen spoke about how the delays 

in our payroll system harm those with lower incomes. EWA helped 

solve that. But if we don’t create new legislation and regulations, 

then we are left with the same products we already have, and that 

means we are satisfied with the status quo and we are comfortable 

with the amount of inequality we have. 

I believe we can do better, and I think we all want that, and that 

is why we need legislation and regulation that preserves and promotes innovation and consumer choice. 

I would like to thank Congressman Steil for the discussion draft, 

and I look forward to working with all Members to find solutions 

that help consumers. 

Chairman Hill, Ranking Member Lynch, and members of the 

subcommittee, thank you for the opportunity to testify today, and 

I look forward to answering your questions. 

[The prepared statement of Mr. Palaniappan can be found on 

page 55 of the appendix.] 

Chairman HILL. Thank you for your testimony. 

Mr. Sanz, you are now recognized for 5 minutes to give your oral 

presentation. 

STATEMENT OF PARRIS SANZ, EXECUTIVE VICE PRESIDENT, 

GENERAL COUNSEL, AND HEAD OF POLICY AND GOVERNMENT RELATIONS, WEBBANK 

Mr. SANZ. Thank you, Mr. Chairman. 

Chairman Hill, Ranking Member Lynch, and members of the 

subcommittee, I am honored to appear before this subcommittee 

today on behalf of WebBank to discuss how responsible bank partnerships, like WebBank’s, drive innovation, enhance inclusion for 
10 

underserved consumers, and support compliance with applicable 

laws and regulations. We also wish to express support for innovative BNPL and EWA products, and efforts to regulate them as noncredit products. 

My name is Parris Sanz. I am the EVP, general counsel, and 

head of policy at WebBank. WebBank has the longest track record 

of successfully overseeing third-party lending programs through 

bank partnerships and has originated and funded over $180 billion 

in consumer and commercial loan products. 

The bank provides its credit products through the platforms of its 

nonbank strategic partners, including well-recognized technology 

companies like PayPal, Intuit, Shopify, and Toast. Based on the 

bank’s experience as a pioneer in the industry, we believe that 

bank-fintech partnerships can unlock the greatest strengths of each 

participant, yielding a sum greater than its parts. 

Fintech companies develop amazing technology platforms that 

deliver minimal friction, state-of-the-art customer experiences, 

serving customers on their mobile phones and online, where they 

want to transact. These technologies provide the ability to scale up 

quickly and reduce cost, but banks often struggle to develop them 

on their own. 

Banks like WebBank have deep expertise in financial product design, regulatory compliance, and oversight. When these capabilities 

are combined, they enable the parties to bring innovative and valuable financial products to market efficiently and at scale, while ensuring legal and regulatory compliance. 

At WebBank, we believe the best way to operate these partnerships relies on three key pillars. First, the bank must engage in 

rigorous due diligence and risk assessments of the fintech partner 

upfront and on an ongoing basis, commensurate with the applicable 

risks of the partner and the program. 

Second, the bank must carefully structure its agreements with 

the fintechs to limit the bank’s exposure and to ensure that the 

bank has the rights it needs to control the program effectively and 

to oversee its lending programs, including control of the credit policy, marketing, and customer-facing materials. 

Third, the bank must apply ongoing supervision and oversight 

across all aspects of third-party lending programs. Banks should 

require their fintech partners to adopt and maintain bank-approved compliance management systems and to regularly test, 

audit, and report on them. 

WebBank’s application of these core pillars has enabled us to 

bring valuable consumer products to market in compliance with applicable laws and regulations, subjecting our fintech partners to the 

supervision and oversight of the bank and its regulators. 

But some stakeholders would have this subcommittee believe 

that bank partnerships are inherently problematic because they 

present the theoretical possibility of supporting high APR consumer products. They point to rare exceptions of banks supporting 

high-APR programs through bank partnerships to claim the bank 

partnership model itself is problematic, ignoring that most highAPR programs come from other entities, not bank partnerships. 

Moreover, these stakeholders take the position that if a nonbank 

has a predominant economic interest in a bank-originated loan, 
11 

then the partnership is a rent-a-bank, and the nonbank must be 

treated as the lender under State law. This position is illogical and 

completely inconsistent with Supreme Court precedent and the realities of the secondary market. 

For example, if a bank originated a 5-year installment loan and 

sold it to a credit fund in the first year, the conclusion is that the 

purchaser is the true lender, subject to the myriad laws of the 

State in which the borrower resides, which would bring the entire 

secondary market for such a loan to a grinding halt. 

These stakeholders attempt to obscure the reality that the bank 

partnership model is a neutral one by which banks and fintechs 

can work together to leverage what they each do best to drive innovation, inclusion, and compliance, while operating within the regulatory perimeter. 

WebBank provides the strongest counterexample to these claims 

by providing consumers with financial products that are innovative, 

inclusive, fairly priced, and comply with all applicable laws and 

regulations. 

For all these reasons, State and Federal lawmakers should be 

wary of attacking bank partnerships, lest they throw the baby out 

with the bath water. Laws affecting bank partnerships that are intended to keep out predatory programs have been overly-inclusive 

and have the effect of keeping out responsible programs as well. 

Accordingly, we ask members of this subcommittee to support efforts to create greater legal certainty regarding the treatment of 

loans originated by banks and bank partnerships. We ask Congress 

to support a more reasonable and practical framework than the 

predominant economic interest test to determine when the bank is 

the true lender and when inconsistent State laws are preempted by 

Federal banking laws. 

Finally, WebBank cautions this subcommittee against adopting a 

one-size-fits-all approach to regulating BNPL and EWA products 

that conflates them with traditional credit products. To do so risks 

overregulation that is not appropriate for such noncredit products. 

The appropriate balance between financial innovation and regulation lies in a tailored regulatory framework based on the provider’s activities and commensurate with the actual risks associated with such products. 

Thank you for the opportunity to testify today, and I look forward to answering your questions. 

[The prepared statement of Mr. Sanz can be found on page 62 

of the appendix.] 

Chairman HILL. We appreciate your testimony. 

Ms. Spotser, you are now recognized for 5 minutes for your oral 

presentation. 

STATEMENT OF MITRIA W. SPOTSER, VICE PRESIDENT AND 

DIRECTOR OF FEDERAL POLICY, CENTER FOR RESPONSIBLE LENDING (CRL) 

Ms. SPOTSER. First of all, good morning, everybody. On behalf of 

the Center for Responsible Lending (CRL), I would like to thank 

you, Chairman Hill, Ranking Member Lynch, and members of the 

subcommittee, for the opportunity to testify today. 
12 

Two words really stick out in the title of this hearing, and those 

are, ‘‘innovation,’’ and, ‘‘competition.’’ And the core of my testimony 

is going to focus on those two words and talk about why it is important that we actually remember what those words mean and why 

they matter. 

And I am going to start with, first of all, why they matter. We 

believe in innovation in the financial services market, and the Center for Responsible Lending does as well, but we believe in it because, done correctly, innovation improves lender efficiency. And by 

improving efficiency, lenders will be better able to market a product at a more-affordable cost to consumers. 

The goal here in innovation is to expand access by competing on 

price. The reason why that matters in this conversation in particular is that some of the regulatory exceptions that are being 

asked to be made today are to, in fact, not have to compete on 

price. So, we are talking about products that are asking that they 

not be held accountable to the same disclosure obligations that 

other financial institutions, credit unions, community banks across 

this country are required to do. And the rationale behind that is 

that somehow, these products are different. 

Let’s take an example. And since I have a very short amount of 

time, I am only going to give one example. But let’s take a product 

like Earned Wage Access, and the notion is, well, you get your 

wages early. But these third-party products are not connected to 

the employer. The employer is actually not transmitting your pay. 

The third party is, in fact, using their own financials, their own 

cash that they have available, and they are submitting it to the 

consumer. The company does not actually go to your employer to 

deduct that amount from your paycheck. So, it is not an employer 

payroll deduction, and the recourse is not against the employer. 

The recourse is against you and your bank account. 

That is a loan. The reason why it is a loan is this. We have all 

been working in the financial services sector for a number of years, 

and I have to tell you, any time I advance cash to someone with 

the expectation that they repay that capital to me, it is a fundamental business proposition where I look at their ability to repay 

that based on their future income. That’s called underwriting. It is 

a really important component of underwriting that every single financial institution does. 

So, you are always repaying a loan based on your future earned 

income, and I am always structuring the repayment of your loan 

based on when I anticipate those wages will come. What we have 

here is not a fundamental distinction of the characteristics of the 

product; we have a really interesting way to explain a product that 

already exists. 

I am from a small town, and we have these kind of traditional 

sayings, and one of them is, if it looks like a duck, it swims like 

a duck, and it quacks like a duck, it is probably a duck. 

Buy Now, Pay Later and Earned Wage Access look and function 

like credit. They look and function and act like capital and loans. 

And they should be regulated as such. 

And here is why this matters on the second end about competition. I talked about the fact that I am here from the Center for Re-
13 

sponsible Lending, but we are also an affiliate of a financial institution, Self-Help, and we have the Self-Help Federal Credit Union. 

The reason why this matters so much is because this committee 

is also inherently concerned about the brick-and-mortar financial 

institutions in your district that work with your constituents to actively report credit histories from payments, and to push them into 

assets and develop long-term relationships with them that lead to 

wealth-producing assets. 

They are all required to meet the same disclosure obligations 

that these institutions are somehow representing they should not 

be subject to, but that is not competition. That is, in fact, inherently anticompetitive. 

I say to you that we have no aversion to Buy Now, Pay Later 

products and Earned Wage Access products, anything that people 

want to do with respect to these products, as long as they are required to be able to produce the same information about their 

costs, and as long as they compete under the same characteristics 

that every financial institution in this country should compete on, 

and that is price. 

Voluntary tips and monthly subscriptions disguised as excuses 

other than actually charging the cost of credit are not competing 

on price. 

Thank you. 

[The prepared statement of Ms. Spotser can be found on page 80 

of the appendix.] 

Chairman HILL. Thank you for your testimony. 

I appreciate the entire panel’s participation. 

The Chair now recognizes himself for 5 minutes for questions. 

In my opening remarks, I talked about community banks in my 

home State of Arkansas partnering with fintech startups to be on 

the cutting edge of technology and meet consumer demand. We are 

blessed in Little Rock to have a venture center that has been open 

now for 11 years, and our fintech partnership with FIS, the publicly-traded company there, has Little Rock at the top of its innovation hub, looking for fintech solutions that they can offer to banks 

for both internal compliance and cost reduction, as well as customer acquisition and customer service aspects of it. And it has 

been impressive over the last decade to watch their innovation and 

the expansion of what they are doing. 

According to McKinsey & Company, when you look at the top 

100 banks by asset size, 80 percent of them have now partnered 

with at least one fintech company over the years on that same sort 

of approach, internal improvement and reduction of cost, or customer acquisition or service. 

Mr. Sanz, why is it when only a few years ago, we viewed this 

fintech-bank situation as disruptive and the fintech companies 

were testifying that they were going to put traditional commercial 

banks out of business, that we now see a lot more collaboration? 

Can you reflect on that change over the past few years? 

Mr. SANZ. Yes. And thank you for your question, Mr. Chairman. 

I would say that over the last few years, many banks have come 

to the realization that if you can’t beat them, join them. The DNA 

of banks and fintech companies are very different. Banks are focused on risk management and regulatory oversight. Fintech com-
14 

panies’ focus is on the customer experience, minimal friction, ease 

of use, and essentially, bringing, if you will, Apple-like design principles to financial services and products. 

These are technologies that are difficult for many banks to develop internally, both because they don’t have the DNA, if you will, 

and often because they don’t have the resources to do it. 

Chairman HILL. Let me interrupt you there, because that brings 

up a good point, I think, about traditional banking, their access 

and the use of Big Data to enhance their own customer database, 

their own geographic data knowledge. 

Would you say that has really helped banks reach out to more 

customers and expand the product availability to people who have 

little or no credit history, because the traditional banks just don’t 

have access? Have you blended that in with what you are doing 

with the fintechs? 

Mr. SANZ. Yes, absolutely. Although banks certainly have developed their own internal technological capabilities,certain technologies definitely have been outside of their focus. I will give you 

one example. WebBank established a partnership with a company 

called Petal. Petal had developed cutting-edge technology with respect to cash flow underwriting, pursuant to which they could ingest bank statement transactional history, consumer-permissioned 

information. And with that, they could develop a risk score for 

someone with a no-file or thin-file credit history that could be used 

to either underwrite them a loan or in conjunction with traditional 

scores. 

We have partnered with them since 2018, and we have been very 

successful in being able to provide introductory credit cards to credit invisible consumers who likely would have been declined by 

other financial institutions. 

Chairman HILL. That is helpful. 

Just continuing with that theme, since you partner with these 

companies and you provide that bank compliance focus, really to 

Ms. Spotser’s concept about everybody playing by the same rules, 

effectively, WebBank has a high standard of compliance. So, what 

do you think recently about the third-party risk management 

guidelines that have recently been published? 

Mr. SANZ. Yes. Thank you for the question. I will tell you that 

our view is that we generally agree with the sentiments and 

thoughts expressed by Governor Bowman. Although we think that 

some of the principles put forth are helpful, it is a one-size-fits-all 

recipe that is being provided, that doesn’t provide sufficient tailored expectations for smaller institutions. 

When we initially saw the guidance at WebBank, we held it up 

to ourselves and felt comfortable that we live up to those principles, but we are a bank that has been focused exclusively on managing fintech partnerships for over 25 years, with 250 people dedicated to it. As I look at that guidance and think about other banks 

which would want to begin to leverage relationships with fintechs, 

I think it could be very daunting in terms of the resources—— 

Chairman HILL. Thank you. In my time remaining, if you could 

respond in writing just how you would tailor that scope so that we 

could have some feel for that in the committee, that would be very 

helpful. 
15 

That concludes my time, and I turn to my good friend, the ranking member of the subcommittee, Mr. Lynch, for his 5 minutes of 

questions. 

Mr. LYNCH. Thank you, Mr. Chairman. 

Ms. Spotser, you highlight, I think very well, the conflict between 

the business practices of credit unions and traditional small banks, 

and what they have to do in order to report and track the creditworthiness and loan performance of their products versus the 

carveout that is being urged by folks in fintech and Buy Now, Pay 

Later. 

There is a generational change going on here where a lot of 

young people— I don’t think my two girls have ever been in a 

bank. They do everything on their phone. They have that iPhone, 

and so they are much more likely to gravitate towards this product. 

And I think in a way that is what the industry is doing here. They 

are sort of following customer preferences. 

But there is a trap. We have seen a spike in delinquency rates 

among Buy Now, Pay Later customers that is worrisome, especially 

in recent months where interest rates are going up. And I know 

that many Buy Now, Pay Later products don’t charge interest 

rates. They have different ways of monetizing this. 

However, there is pressure in the general economy, so people are 

borrowing more, so the default rates and delinquency rates among 

Buy Now, Pay Later customers is far higher than those who are 

nonborrowers in that space. And I just wonder if you could talk 

about the trap that young people or anyone using that product 

might fall into? 

Ms. SPOTSER. Sure. The biggest issue here is that these products 

are marketed as being interest-free and free. And as a consumer, 

the first thing I think is that really means that it is free. And then, 

when you go into the weeds of looking at the product, there is a 

service fee or something else that is associated with it. So, the costs 

themselves are not upfront. 

So, you are right, sir. I think to the extent that there is a technological advantage, you have an app, although there are very few financial institutions in the United States right now that do not 

have apps. But to the extent that you have that, there is some familiarity and ease. 

But what we are seeing as the most significant point here is that 

we are not accurately reflecting the cost of these products. And because of that, we do have an increase in delinquencies because individuals are, in fact, not fully aware of the costs upfront, whereas, 

financial institutions, traditional brick and mortar do have an obligation to disclose that. 

Now, I want to be clear: I believe that these institutions have 

that same obligation to disclose it. That is a regulatory matter for 

which the Consumer Financial Protection Bureau will hopefully 

provide some guidance. But it is imperative that people actually 

disclose the full cost of credit. 

Mr. LYNCH. Right. And simply looking at that one payment, 

monthly payment, does not illustrate or give a picture of the true 

cost of that overall purchase, right? 

Ms. SPOTSER. Yes. Not if you are charging a service fee or a late 

fee that comes on top of that. And there is an expectation—one of 
16 

the issues here is that these are not one-and-done products even 

by their own analysis. There was a report from FTI Consulting 

that was convened by Earnin and a couple of other organizations, 

and they are saying that consumers use these products every 2 

weeks. 

We remember a product that looked a little bit like that. So, it is not just the $100 that you borrowed and the $10 fee there, and 

then, the expedited processing fee, none of which are disclosed as 

actually being the cost of credit. But it’s the fact that you are going 

to do that 3 or 4 times. And because I have access to your bank 

account, there is a high probability, since I am saying that my 

product is being used to cover overdrafts, that I, in fact, am overdrafting your account in that process. So now, I need to borrow 

even more money. 

And one of the things that we want to be clear about here and 

why we are saying, not, again, that these products should be taken 

out of the market, but that they should be upfront about their disclosures, is that consumers have the right to know what the full 

cost is and to understand the risk that they are taking by taking 

out one of these products. 

Mr. LYNCH. That’s great. What are some of the standards that 

you would like to see applied to the Buy Now, Pay Later space and 

some of these arguably innovative platforms that are offering different ways, although not fully transparent, to consumers on financing their debt? 

Ms. SPOTSER. I would like them to abide by the existing law, 

which is the Truth in Lending Act and the Credit Card Act, to the 

extent that their products actually meet those obligations. And that 

means that they would be upfront about the cost of their products. 

Mr. LYNCH. That’s great. Thank you. I yield back. 

Chairman HILL. The gentleman yields back. 

The gentleman from Ohio, Mr. Davidson, who is also the Vice 

Chair of the subcommittee, is recognized for 5 minutes. 

Mr. DAVIDSON. I thank the chairman, and I thank the witnesses. 

I really appreciate your expertise and your time and travel here to 

help educate us and inform us on policy. 

It is a dynamic time in our financial markets, and fintech is really making people wrestle with these things. Even as I listen to you 

all, and your statements have some overlap and agreement and 

some healthy disagreement, it is important for us to understand 

this because we have to adapt as well to make sure that our laws 

stay relevant and functional so that our markets do that for our 

consumers. 

I just think it is great that we have this subcommittee. It took 

a while for the Financial Services Committee to get to here. 

But one of the constants has been go back to the Bill of Rights, 

the Fourth Amendment, the right to privacy. So much of our data 

is collected through the payment system, through financial technology, going back to the whole Bank Secrecy Act and the thirdparty doctrine. It has all been established with financials. 

I had a conversation recently where I was asked, why would a 

business still accept cash? And there are a host of reasons, but one 

of my answers was, maybe they don’t want to spy on their customers or facilitate spying by others on their customers. 
17 

This week, the Consumer Financial Protection Bureau—or about 

a week ago—introduced their 1033 privacy rule, and there are lots 

of comments coming on it. People have digested about 300 pages 

and gone through it. 

And, Mrs. Kelley, I just wonder what you think about payment 

privacy as we work towards, maybe a payment privacy act? 

Mrs. KELLEY. Yes, Congressman Davidson. Thank you for that 

question. 

We represent the payments industry, and there is no issue that 

is more top of mind for the payments industry than security and 

trust. Consumers have to know that their data is secure. They have 

to know that they can trust the system, and they have to know 

that their privacy remains intact. So, as we think about the issues 

of data security, privacy, and trust as an industry—I was saying 

that is exactly why the industry has devoted billions of billions of 

dollars to security to—— 

Mr. DAVIDSON. Yes, it has to be secure. But obviously, you collect 

information about the consumer to know this is who they say they 

are, and that they have the credit that they claim to have. 

I think the concern is, what happens with that information afterwards? There is a big market for it. How do you protect it and recognize kind of the property right that consumers have? And I think 

that is the fundamental question. 

I look forward to collaborating with you, and your sector, and 

frankly, people broadly, because I think this is something where 

the CFPB is focusing on one of the core issues our consumers care 

about, which is their data. And people are monetizing it in a lot 

of ways. And, frankly, the government is kind of exploiting it in 

some ways. 

So, I look forward to wrestling with that. I think that is one of 

the most important topics for our committee to resolve. 

Mr. Sanz, in your testimony, you lay out how poorly-devised 

State laws have created legal uncertainty regarding whether bankoriginated loans will remain enforceable on their original terms 

after they are sold to nonbank entities. Obviously, the structured 

credit market is a very big part of our financial markets. 

Can you relay how this legal uncertainty is impacting consumers 

and our markets? 

Mr. SANZ. Absolutely. I will tell you, Congressman, that it is a 

repeat of what we saw after the Madden v. Midland case in the 

Second Circuit. When that case came out, it raised legal uncertainty regarding the enforceability of bank-originated loans at 

APRs above certain State regulatory caps in Vermont, New York, 

and Connecticut, in the hands of nonbank purchasers. 

The result was that the secondary market seized up, and those 

loans were no longer originated. The impact was very clear. It was 

set forth in a study that I included in my written testimony, and 

it showed that, whereas consumers before the Madden decision 

said that FICOs below 640 were able to receive capital, after the 

decision, those loans dried up entirely. And when you look outside 

the Second Circuit, you see availability increasing for that same 

risk profile population. 

The same legal uncertainty is being created in States like Illinois, New Mexico, Maine, and others which are passing laws that 
18 

basically say that if a nonbank in a partnership has the predominant economic interest in a bank-originated loan, that the nonbank 

itself is the lender, and subject to State laws. 

Mr. DAVIDSON. It changes the terms of the deal. So, how do you 

know you really have a deal? It essentially kills the market, right? 

Mr. SANZ. Yes. I completely agree, sir. This is a one variable outcome determinative test, who enjoys most of the economics in the 

underlying loan. It is completely inconsistent with the secondary 

market. Banks originate loans and sell them all day long. That is 

how we can make more capital available. 

Mr. DAVIDSON. Thank you. 

My time has unfortunately expired, and I yield back. 

Chairman HILL. The gentleman yields back. 

The gentleman from Illinois, Mr. Casten, is recognized for 5 minutes. 

Mr. CASTEN. Thank you, Mr. Chairman. And I thank you all for 

being here. 

Before we start, and I do want to spend most of my time talking 

about your expertise, which I appreciate you sharing with us today, 

I just want to chat with you all for a moment as Americans. We 

are less than 3 years after January 6th, and after the House was 

attacked, we walked back to the House Floor. We walked through 

the broken glass on the floor. We walked past cots with National 

Guard officials who were sleeping in shifts so they could continue 

to protect us. 

And I went up and I sat with Mr. Hill up in the gallery and 

watched the debate start on whether or not we were going to overturn the Arizona election results. And I watched the majority of the 

Republican caucus vote to continue the work that the insurrectionists tried to start. 

And I want to thank Mr. Hill for your vote that day in not voting 

to overturn the election. I want to acknowledge that the chairman 

of this committee also did not. It should not be exceptional or 

praiseworthy to defend our democracy, but I understand the courage that takes in today’s Republican Party. 

And I say that because we are moments from going to the Floor 

and deciding whether to elect a Speaker, someone who not only 

voted to overturn the election, but wrote the legal framework that 

his colleagues had empowered them to do the same. And I say that, 

because democracy only survives if we defend it. 

I hope to be able to tell you at the end of the day that there was 

robust bipartisan support for the peaceful transfer of power and democracy, but I fear that I am not going to be able to, because everything we are talking about today is predicated on that continuing. 

I am going to move to EWA. Mr. Palaniappan, it’s nice to see you 

again. And I don’t want to make you the poster child for the whole 

industry, but I’m hoping you can educate us a little bit. 

As I recall from our prior conversations, your payment model— 

you have a no-cost model, but people can offer to pay tips if they 

like the service. And then, you have a separate cost where people 

pay $1.99 to $3.99. I see you are nodding your head, so hopefully, 

I have that about right. Is $3.99 the maximum fee if they do that? 
19 

Mr. PALANIAPPAN. That is correct. 

Mr. CASTEN. Okay. And, again, I don’t know if you are representing the industry, but what percentage of your customers opt 

for the immediate payment versus the delayed payment? 

Mr. PALANIAPPAN. Thank you for the question. And I can speak 

about our numbers. I think the industry—— 

Mr. CASTEN. Just an estimate, because I want to get through it, 

because I am trying to educate myself on this limited question. 

Mr. PALANIAPPAN. We allow what we call tips, voluntary payments, on all transactions. Over half of our transactions do not 

have a tip, and the average tip is $1.45. And then, on the Lightning Speed, which is the wire light service, that is $1.99 to $3.99; 

the usage varies. On the weekends, it’s higher, because ACH shuts 

down. 

Mr. CASTEN. Okay. But overall, about 50 percent on an annual 

basis? 

Mr. PALANIAPPAN. It could be a little bit higher than 50 percent. 

Mr. CASTEN. Okay. And what is the average amount that people 

are taking out when they are doing that expedited payment? I see 

that you have a cap of $750, but what is the average that people 

are taking that they have to pay that $1.99 to $3.99 on? 

Mr. PALANIAPPAN. The $1.99 is a choice. They can also get it 

same day, no cost, without Lightning Speed, because we use same 

day—— 

Mr. CASTEN. Yes. I am just talking about the Lightning Speed 

piece. 

Mr. PALANIAPPAN. The average across all transactions is about 

$85 a transaction. 

Mr. CASTEN. Okay. And you may not want to answer this, I am 

sure you are a private company, but what is the return on equity 

you have to hit in order to make sure that you have the capital 

necessary to keep your business running? 

Mr. PALANIAPPAN. I am not exactly sure how you calculate return 

on equity. 

Mr. CASTEN. What I am saying is you are providing, effectively, 

a working capital revolver. And your ability to access the capital, 

to fund that and to grow is going to be contingent on delivering 

some acceptable return to your capital provider. So, what is the 

number you have to hit, whether through tips, through $1.99, 

through $3.99, whatever the range, what do you have to manage 

your business to? 

Mr. PALANIAPPAN. We don’t have any thresholds that we are required to hit. I think we are trying to make a business that is sustainable. It is sort of interesting like how the whole pricing model 

came about, if you would let me talk about it. 

Mr. CASTEN. Again, if you are uncomfortable—what I am trying 

to understand, and let me sort of maybe get to the punch line and 

work backwards. I admire what you are doing, and I am trying to 

understand how this all sits together. But there is the question, I 

think Ms. Spotser raised of, at some point, where is the bright line 

between a lending product and an act of charity and something 

that doesn’t need to be covered? 
20 

And, of course, in this hearing, we have a bill that has been noticed, that would exempt the EWA industry from the Truth in 

Lending Act. 

Let me just call the question: Do you support EWA not being 

subject to the Truth in Lending Act? 

Chairman HILL. You can respond to that question in writing. 

Mr. CASTEN. Ms. Spotser, I would welcome your thoughts on that 

question as well, because I am trying to understand, to the degree 

this is a loan, and how we think about that. 

Chairman HILL. The gentleman’s time has expired. 

Mrs. Houchin is recognized for 5 minutes. 

Mrs. HOUCHIN. Thank you, Chairman Hill, and Ranking Member 

Lynch. 

And thank you to the witnesses for testifying today. 

Since I became a member of this committee in January, one of 

my top priorities has been to ensure that everyday Americans, including those who live in my district in southern Indiana, have 

flexibility and choice when it comes to planning for their own financial futures and for their day-to-day financial activities. 

Innovation in fintech has been instrumental in helping to bring 

about more opportunities for all Americans, from delivering products to underserved communities, to providing flexibility with payroll and payments. 

Clearly, financial technology has already changed the way people 

interact with their banks and the financial sector. While many 

Americans access their bank accounts online and invest with their 

smartphones, fintechs have also made it possible to make largerpayment purchases through flexible payment arrangements, which 

can allow an employee to access earned wages without waiting 

until payday arrives. 

With all the benefits that financial technology has to offer, I 

think we need to ensure that our regulatory environment ultimately helps people access some of these financial services products and that they have the tools they need to invest and save on 

their own terms. 

Mr. Sanz, WebBank has entered into a partnership in which the 

bank provides credit access to individuals who lack established 

credit history, an example being small business loans. Could you 

walk us through why a bank-fintech partnership would be critical 

to offering these types of products? 

Mr. SANZ. Yes. Absolutely. And thank you for the question. 

We have entered into various partnerships that take advantage 

of transactional data, as you indicated, some on the small business 

side, and some on the consumer side. I mentioned the consumer 

one before. It is one of a number, but the relationship with Petal 

stands out in that Petal has developed leading-edge cash flow underwriting technology that really provides incredible real-time visibility into the financial condition of a consumer. 

You can see the income that they are bringing in, and other 

amounts coming in. You can see how much they are spending, and 

how much they are saving. And these are categorized in a way that 

is not getting into the nitty-gritty or favoring a purchase at one 

kind of a store versus another. But with that, you can essentially 

effectively underwrite folks who have a thin file or no file. 
21 

Similarly, on the small business side, we have been able to 

achieve similar results with PayPal, where we have flexible payment loans that are based on the transactional history that we see 

flowing through PayPal’s closed-loop system. We are seeing the revenue that is coming in, and that provides really powerful insights, 

especially since COVID, given that credit scores are a lagging indicator and they have been really muddied by the stimulus. 

Mrs. HOUCHIN. Thank you. 

Mr. Palaniappan, families working paycheck to paycheck currently are bound by a 2- to 4-week pay cycle, and there could be 

real-life factors and unexpected medical bills where they can’t wait 

for payday. We know that according to a study conducted by 

Branch Logic, approximately 48 percent of hourly employees have 

no savings, and 83 percent have less than $500 saved. So, the 

Earned Wage Access products can help consumers pay bills on time 

and avoid overdraft fees. 

Will you describe the additional benefits that come with giving 

access to consumers, depending on that traditional 2- to 4-week 

wait, and how these products offered by Earnin allow consumers to 

manage their finances in a way that meets their own needs in paying bills before payday? 

Mr. PALANIAPPAN. Sure. And like on the antiquated payroll system and people waiting 2 to 4 weeks, it actually wasn’t always this 

way. Previously, people used to get paid every day after they 

worked, and really nothing else in our life works in a 2-week batch. 

Just imagine if Google said, give me all of your search queries, and 

in 2 weeks, I will give you the results? Nobody would use Google. 

That is the payroll system we are forcing everybody to live with, 

and it doesn’t need to be that way, because the technology exists 

to run payroll much faster for people. 

In terms of benefits, like I told you about the billion dollars in 

overdraft fees that our customers avoid every year because they 

can access their wages when they need it to pay bills on time, to 

pay rent, to buy gas, to buy groceries, there are also lots of benefits 

that are not financial. 

We have heard from lots of customers who, after years, have 

celebrated their birthday on their birthday and not on payday; people who have gone to the dentist when their tooth aches and not 

put it away till payday because they couldn’t afford to go to the 

dentist. I heard from a customer who was able to send her son on 

a field trip because she could access Earnin, and if not for Earnin, 

he would not have gone on the field trip. 

So, I think there are all these ways in which people’s lives are 

being held back because we lock their pay in the pay cycle. 

Mrs. HOUCHIN. Thank you. 

And finally, with the remaining time I have, Mrs. Kelley, what 

about the Buy Now, Pay Later products? What options would be 

available to these consumers if those products weren’t available? 

Who is using these, and why are the flexible payment arrangements so popular? 

Mrs. KELLEY. Yes. Consumers across-the-board are using them. 

It is an incredibly popular product, and for good reason: It gives 

consumers choice, flexibility, and optionality that they wouldn’t 

have without this product. 
22 

And similar to what we just heard, sometimes people need to 

make a purchase when it is not convenient for their pay cycle, for 

other reasons. Buy now, Pay Later allows them to do that. Paying 

what is, in fact, typically free over four installments, which just 

provides choice to consumers, that is important that they wouldn’t 

have otherwise. 

Mrs. HOUCHIN. Thank you. 

Mr. Chairman, I yield back. 

Chairman HILL. I thank the gentlewoman for yielding back. 

Mr. Nickel is recognized for 5 minutes. 

Mr. NICKEL. Thank you, Mr. Chairman. 

It is great to be back here in the committee room, getting to 

work. I am excited about the work we are doing here in a bipartisan way. The Digital Asset Market Structure bill, the Stablecoin 

bill, I am ready to start working together to improve those bills and 

get things moving again on the Floor of the House. 

But today, we are here to talk about fintech, and fintech companies play a crucial role in driving economic growth and financial inclusion. We need to strike a balance that encourages innovation, 

while ensuring robust consumer protections, as this will not only 

boost our economy but also provide better access to the financial 

system for marginalized communities. It is our responsibility to foster an environment where fintechs can thrive, creating jobs and expanding access to affordable financial services, while never losing 

sight of the need to shield consumers from potential risks. 

Mr. Palaniappan, can you please explain the regulatory structure, if there even is one, for Earned Wage Access products? 

Mr. PALANIAPPAN. Thank you for that question. In 2017, the 

CFPB, under Director Cordray, exempted EWA from the payday 

rule. Despite being exempt from the payday rule, there are a number of other regulations that we adhere to: Unfair, Deceptive, or 

Abusive Acts of Practices (UDAAP); the Gramm-Leach-Bliley Act 

(GLBA); and then, privacy things, like the California Consumer 

Privact Act (CCPA). 

In addition, Nevada has passed a law that establishes a framework for Earned Wage Access, SB290, and Missouri has passed another law that has the framework for Earned Wage Access, SB103. 

Mr. NICKEL. So, what is the need for new legislation? 

Mr. PALANIAPPAN. I think it provides clarity with the right consumer protections. And Earned Wage Access has a number of new 

and much-needed consumer protections. The product is always 

available to customers at no cost. It is a nonrecourse product, so 

there are no collections, there are no penalties, and there are no 

late fees. It does not impact your credit score. 

I think we want to get those protections in the law so that the 

consumers can continue to access the product with confidence. 

Mr. NICKEL. I have heard a lot of concerns about Earned Wage 

Access products locking people into a cycle of debt. Can you please 

explain what happens if a consumer doesn’t repay their funds? 

Mr. PALANIAPPAN. The service is simply paused. And if they want 

to use it again, they call us up and make us whole, and then they 

can use the product again. There are no late fees. There is no interest accruing. There is no impact on their credit score. 

Mr. NICKEL. Thank you very much. 
23 

Again, charges or interest, there are none that have to be repaid 

by the consumers? 

Mr. PALANIAPPAN. That is correct. 

Mr. NICKEL. Mr. Sanz, can you explain the role of technology and 

innovation in underwriting approaches, such as cash flow underwriting and promoting financial inclusion, and providing credit to 

thin-file or no-file customers? 

Mr. SANZ. Yes. I would be happy to. Thank you for the question. 

This has been an answer that I have presented a couple of times 

today. But to maybe expand more generally beyond our relationship with Petal, I would tell you that I think what many fintech 

players have realized is that traditional credit scores don’t provide 

the insight, the real-time insight needed to effectively underwrite 

consumers, small businesses, et cetera. And attempts have been 

made to tap into real-time information, including bank statement 

information, credit card processing information, and other receivables flow information to be able to see the actual real-time financial health of a potential borrower. 

That is incredibly powerful information, especially for people who 

are new to credit, low- and moderate-income individuals who have 

thin files or no files. If a traditional approach were applied to them, 

you would look at the FICO, and if they are below 640, the answer 

would be, no. If you look at their bank statement information and 

you can see that they have reasonable income coming in, they are 

spending at reasonable levels, they are net savers, for example, 

then they are a reasonable bet. 

And one great thing about this information is that it has actually 

been studied and largely validated by FinRegLab run by Melissa 

Koide. She looked at about six different firms that use cash flow 

underwriting in their business and found that these cash flow underwriting models are predictive. They are inclusive. They are 

helping people who otherwise have trouble accessing credit. And 

there is no indication that they present any proxy or fair lending 

problems of any kind. 

Mr. NICKEL. My goal is, how can we expand credit, especially to 

marginalized communities, and communities of color? That is my 

goal. 

But in your experience, what distinguishes responsible bank 

partnerships from predatory lending practices, and how can policymakers differentiate between the two when we are crafting laws 

and regulations? 

Mr. SANZ. Yes, thank you. I will tell you that responsible bank 

partnerships are ones where the bank has control of the program, 

oversees the program carefully, controls the credit policy, the marketing materials, requires compliance management systems and 

audits them, and offers products that comply with the existing 

guidance regarding what constitutes nonpredatory products. 

Predatory products, on the other hand, are holistically problematic in terms of their repayment rates, fee harvesting, and repeat 

usage that indicates that it is not healthy reborrowing; it is a debt 

trap. 

Chairman HILL. Thank you, Mr. Sanz. 

Mr. NICKEL. I yield back. 
24 

Chairman HILL. I thank the gentleman from North Carolina for 

yielding back. 

And now, the gentleman from the inspiration for the Fintech Flyover in Lincoln, Nebraska, Mr. Flood, is recognized for 5 minutes. 

Mr. FLOOD. Thank you to the good chairman from the State of 

Arkansas. 

Mr. Sanz, according to a study conducted in 2021, banks that 

partner with fintechs average 2.5 partnerships per institution. In 

your view, why are banks partnering with fintechs? 

Mr. SANZ. Thank you for the question, Congressman. I would say 

that what banks, like WebBank, have realized is that when you 

combine very knowledgeable, effective fintech companies with a 

bank, you unlock the best of each of those participants. 

Fintech companies are incredibly customer-focused. They build 

amazing tech platforms at scale with reach, excellent customer experience, minimal friction, what have you. Banks are very good at 

underwriting, at credit, and at regulatory oversight. They are not 

necessarily the best at building really great tech platforms. So, 

when you combine those capabilities, one plus one equals three, if 

not a larger number. 

And I think that is why you have seen over the last handful of 

years is banks coming around to the conclusion that if you can’t 

beat them, join them, and that they are better off partnering in 

order to leverage the capabilities of fintech companies. 

Mr. FLOOD. I am really interested in financial technology. And as 

the chairman said, Lincoln, Nebraska, is a fintech hub for the 

United States. And we would like to have more. 

In the case of the State of Nebraska, I think that technology can 

also be useful in ensuring that smaller community banks—we have 

about 140 community banks in Nebraska, more State-chartered 

banks than anybody would ever imagine—get access to some of the 

same tools that larger banks have, like a slick mobile app, and an 

updated consumer interface on their website. These are the types 

of features that customers, especially younger customers, have 

grown to expect. 

The problem is, for some of the smaller banks in our communities, they don’t necessarily have the bandwidth or the resources 

to provide these features that consumers are increasingly expecting. That is where, to your point, I think these important partnerships come in. 

This is a question for both Dr. Lenz and Mr. Sanz. Could you 

both speak to the potential benefits that bank-fintech partnerships 

can provide to community banks and their customers? 

Mr. SANZ. I will start with the quick answer. I will tell you that 

the benefits of a fintech relationship are available to all banks, including community banks. But I would say that, in the current environment, banks will need to invest substantial resources to take 

advantage of any of those benefits. The benefits could be myriad, 

depending on what they are looking for, from a slick front end to 

better data analytics to better underwriting, whatever it may be. 

But in order to unleash the benefits of any fintech relationship, 

especially given the current third-party risk management guidance, 

they will have to devote some pretty substantial resources to be 

able to structure their relationship with that partner and oversee 
25 

it effectively. And, unfortunately, I think that guidance makes it 

difficult for community banks to live up to that standard. 

Mr. LENZ. Thank you for the question. And I would second that. 

I think that community banks—I come from North Carolina; I grew 

up in the southeast—serve a lot of small towns, and the big banks 

don’t show up for those kinds of things. 

The opportunity that fintech allows community banks is phenomenal, but in a highly-regulated environment, it becomes difficult for them to adopt those kinds of things. The only way I think 

that community banks can stay viable is to offer those kinds of 

products, because it is too easy for consumers to get ahold of 

things. I think community banks offer a lot to the rural communities in particular. I think they have a place in the United States, 

and these kinds of partnerships are instrumental. 

The idea that a community bank can develop fintech products is 

not even possible. They are too small. They don’t have the resources. And let’s face it, even the large financial institutions have 

trouble. That is why they partner. 

Mr. FLOOD. Along those lines, let’s talk about the recent guidance issued by the Federal Reserve, the FDIC, and the OCC regarding risk management for some of these fintech partnerships. 

Do you think that would it have a chilling effect on some of these 

community banks being able to offer their customers what a large 

bank can offer? 

Mr. LENZ. I think it will have a chilling effect on all banks, not 

just the small banks, across-the-board. If you look at where innovation is coming from, for the most part, it is not coming from banks. 

Square did not come from a bank, but it has afforded millions of 

small businesses the opportunity that they would only have if they 

were large. 

If you look at innovation kind of across-the-board, there is a reason that it is not coming from banks. So, yes, I agree with that 100 

percent. 

Mr. FLOOD. Thank you, Dr. Lenz. 

I yield back. 

Chairman HILL. The gentleman yields back. 

The gentleman from Wisconsin, Mr. Steil, is recognized for 5 

minutes. 

Mr. STEIL. Thank you very much, Chairman Hill. 

And to the witnesses, thanks for being here today. I think this 

is a really important topic. 

I want to start with you, Mr. Palaniappan. In your opening statement, you were talking about kind of the impetus for the creation 

of your company. 

Why are people paid monthly instead of paid daily, paid by the 

hour, meaning the transfer of money, not earned, but why are they 

not paid on a very regular basis? 

Mr. PALANIAPPAN. Thank you for your question. People were actually paid every day for a long time. 

Mr. STEIL. And then it shifted, right? Exactly. So, we go back 100 

years and you carried a 50-pound sack over your shoulder, and you 

worked your tail off throughout the course of the day, and you expected to be paid at the end of the day, right? 
26 

Mr. PALANIAPPAN. Exactly. And society never accepted that employers could hold back someone’s pay past that day. 

Mr. STEIL. And then, these giant enterprise resource planning 

(ERP) systems came in, very expensive, complicated systems, with 

huge global companies and some smaller companies using them as 

well. And the bookkeeping became so complicated to navigate 

through where workers were paid different amounts throughout 

the day, that these massive ERP systems started batching the payment structures, avoid fraud, good accounting standards, and started doing this probably on a monthly basis. Is that fair? 

Mr. PALANIAPPAN. That is correct. 

Mr. STEIL. If a young person comes to the United States House 

of Representatives, works for the Federal Government, and they 

come here and they start a job, and they start after the 15th of the 

month, they are 6 weeks away from their first paycheck. And that 

young person may need to put a down payment or a deposit on 

their rental unit; they are not only going to have to cover this 

month’s rent, they are going to have to put a deposit down. And 

they are still not going to be paid in the course of 4 weeks. So, they 

are going to hit their third rent payment before they get their first 

paycheck. And that is true for countless Americans who are taking 

their first job. Is that right? 

Mr. PALANIAPPAN. That is correct. 

Mr. STEIL. And that is a huge burden on that individual. And 

further, we have really disconnected work from reward in this 

country. I think it is one of the biggest challenges we face writ 

large, outside of just the financial services space. 

But as we are thinking about our entire benefits structure in the 

U.S., how we help people get a job, come out of a dependency situation and lift themselves up on their feet, the number-one thing we 

can do for people, work is at the core. And what we have done as 

a country is disconnect work from reward. 

And in the case of the employment structure here in the United 

States House of Representatives, your Federal Government, and in 

countless companies across the United States, these burdensome 

ERP systems are actually preventing people from getting paid in 

a timely manner. Is that fair? 

Mr. PALANIAPPAN. That is correct. 

Mr. STEIL. And in your example at your company, people came 

to you and said, ‘‘Can I get a loan simply on the money I’ve already 

earned?’’ But that’s not really a loan, is it? 

Mr. PALANIAPPAN. They wanted the money that they had already 

earned. And this happens in millions of small businesses across the 

country where the business owner or the store manager gets asked 

by their employees for money that they have already earned. 

Mr. STEIL. So, it is not a loan. It is simply giving them the 

money that they have already earned. 

Mr. PALANIAPPAN. That is correct. 

Mr. STEIL. And I am thinking that maybe there is a young 

woman or a young man, and they have kids, and it is coming up 

towards the Christmas season, so they want to work an overtime 

shift. Maybe they work at Target. Maybe they work at a store. If 

they were a waiter or a waitress and they worked an overtime 

shift, what would happen? They would take the money home, 
27 

right? They would put it in their pocket. So, if the manager came 

to them and said, ‘‘Hey, Mr. Bartender, do you want to work an 

extra shift, we are down somebody,’’ they would think, ‘‘Boy, this 

is a great way I could save a little in my back pocket and buy some 

presents for my kids.’’ 

That is a work-reward connection immediately. And if you go to 

a restaurant, people work pretty darn hard in a restaurant because 

that work-reward connection is there for everyone. 

But we see many people not taking that extra shift, not because 

they are lazy, but because we have removed the work-reward connection that historically existed in a very common way. 

And I think the Earned Wage Access tools that we are discussing 

in my discussion draft actually addresses one of the key problems 

that we have created as a society over the last 100 years, which 

is a disconnect between work and reward. We do that in a number 

of ways. 

I think we have to break those burdens down to help people find 

that opportunity to help themselves. If your car breaks down, and 

you need $300, and you are a bartender, you can go ask your manager to pick up a couple of shifts and try to walk home with a couple hundred bucks by the end of the weekend. That is quite reasonable. But if you work for countless other companies across the 

United States of America, and you went in to your boss and said, 

‘‘I would like the overtime shift because I have a $200 issue,’’ you 

don’t really have that opportunity to actually get that money in 

any reasonably tight period of time. Is that fair? 

Mr. PALANIAPPAN. You can get it now through Earned Wage Access. 

Mr. STEIL. You could get it through Earned Wage Access. 

Mr. PALANIAPPAN. And over 100 congressional staffers use our 

product. 

Mr. STEIL. I think it is essential—I will wrap up here really 

quick, Mr. Hill, if you give me an extra 10 seconds. 

But I think it is essential that we look at the discussion draft of 

the Earned Wage Access bill to give stability to these companies, 

because I think it really breaks through this burden that many 

people feel where we have disconnected work from reward and 

work to access to the wages that you earn. 

Chairman HILL. The gentleman’s—— 

Mr. STEIL. I will finalize by just asking unanimous consent to 

submit for the record a press release from the Innovative Payments 

Association. 

Chairman HILL. Without objection, it is so ordered. 

The gentleman’s time has expired. 

Mr. STEIL. I yield back. 

Chairman HILL. The gentleman from Texas, Mr. Green, is recognized for 5 minutes. 

Mr. GREEN. Thank you, Mr. Chairman. 

I thank the witnesses for appearing today. And I am pleased to 

have an opportunity to ask a few questions on what I think is an 

important issue that has been called to our attention. 

Ms. Spotser, permit me to ask you, do you agree that the Truth 

in Lending Act (TILA) applies to loans with at least five installment payments, if you know? 
28 

Ms. SPOTSER. Yes, sir, I believe that TILA does apply to loans 

with at least five installment payments. 

Mr. GREEN. And if you have a loan with less than five, then 

TILA would not apply? 

Ms. SPOTSER. I don’t necessarily agree with that proposition, sir. 

Mr. GREEN. Is that, generally speaking, what many others agree 

with? 

Ms. SPOTSER. I think there is a presumption—I think we are still 

waiting for the Consumer Financial Protection Bureau to provide 

some clarity around the TILA disclosures, but we believe that they 

have the legal authority through the Truth in Lending Act to actually expand that standard. 

Mr. GREEN. I understand. 

Ms. SPOTSER. And, again, this would be a disclosure standard. 

Mr. GREEN. I understand. 

The point I am making is this: It seems that many of these companies will, with intentionality, structure their loans such that 

there are only four payments. That way, they don’t have to engage 

in this debate about whether TILA applies if they move to five payments. 

Has that been the case as you have analyzed these circumstances? 

Ms. SPOTSER. Yes, sir. And what I think is actually really important is, again, by their own analysis, these are not one-and-done 

loans. They are, in fact, loans that you take out one and then a day 

later you take out another and then—or 2 weeks later, you take 

out another. 

And even though we have these 4-week constructions, the full 

amount is actually far more significant, which is why the costs are 

more significant. And it is not a 4-week repayment period. It is, in 

fact, an ongoing debt. 

Mr. GREEN. I understand. But the point I am making is that the 

companies with intentionality are evading TILA, which is something that I happen to believe is important. I think Truth in Lending is something that benefits the borrower. 

I also believe that when you avoid these disclosures, you can 

avoid telling the consumer upfront how issues will be resolved 

when there is a dispute. And dispute resolution is pretty important, especially if you find that the means by which the dispute will 

be resolved is one that is not to the benefit, but rather to the detriment of the consumer. You would like to know this, I would, and 

I think most consumers would. 

And my concern, quite frankly, is with what you have called to 

our attention, as it relates to the companies, these fintech companies not wanting to be regulated or having to adhere to the same 

rules that other lenders have to adhere to, like saying that this is 

not a loan when, quite frankly, as you put it so appropriately, the 

money that the consumer receives does not come from the business 

that the consumer works for; it comes from a third party. That 

third party is making this money available. 

Now, you can call it many things, but it does quack and it does 

swim and it does wobble when it walks. As you have put it, it probably is a duck if it does all of these things. 
29 

My point, finally, is this: I am concerned also because of the statistical information that the staff has afforded us, and I think this 

is pretty important. Staff has indicated that Black and Hispanic 

consumers are 63 percent and 50 percent, respectively, more likely 

to use these Buy Now, Pay Later products than White consumers. 

That is pretty important. Blacks and Hispanics are more likely to 

make less, earn less, and as a result, need these products more and 

as a result, become victims more so than other folks. 

They also indicate to us that—let’s see. This is important—female consumers are 35 percent more likely than males to use these 

Buy Now, Pay Later products. We know that females don’t get 

equal pay for equal work in our society. We don’t like to admit it, 

but it is true. 

Thank you for the time, Mr. Chairman. 

And for the record, if I may ask that the witnesses please confirm for me that 72.6 percent of the Buy Now, Pay Later users earn 

less than $75,000 a year? 

Chairman HILL. I thank the gentleman from Texas, and ask the 

witnesses if you would confirm that in writing to the gentleman 

from Texas. 

I now recognize the gentleman from South Carolina, Mr. 

Timmons, for 5 minutes. 

Mr. TIMMONS. Thank you, Mr. Chairman. 

Bank-fintech partnerships have created significant competition in 

the financial services industry by providing consumers with the 

services they seek. The environment created through open banking 

has yielded financial freedoms never before seen by consumers. 

Through products like Earned Wage Access or Buy Now, Pay Later 

services, consumers wield the flexibility to meet their financial 

needs at the touch of a button. 

With the increase in banking-fintech relationships, we have seen 

many banks face increased scrutiny by bank examiners and enforcement staff simply due to their business model. This increased 

regulatory scrutiny has no basis in real-world evidence and actively 

stymies innovation. 

Mrs. Kelley, do you agree that it is crucial for Federal regulators 

to continue working with market participants to ensure they create 

pragmatic guardrails around bank-fintech partnerships instead of 

pursuing regulation by enforcement due to the fear of potential 

harms? 

Mrs. KELLEY. Thank you for the question. We certainly agree 

that it is very important to work in partnership to ensure that the 

necessary guardrails are in place but the guardrails that are put 

in place are appropriate and continue to foster innovation as we 

are seeing in the partnerships that you describe. 

Mr. TIMMONS. And it creates predictability as well. 

Mr. Sanz, some have criticized bank-fintech partnerships in the 

wake of the Paycheck Protection Program (PPP) on the grounds 

that such partnerships allow for high levels of fraud within the 

program. Is that a fair assessment? 

Mr. SANZ. Absolutely not. And thank you for the question. I 

think this is another example of a very limited number of cases 

being the basis for tarring all fintech programs with the same 

brush. 
30 

Although the McCombs School of Business study out of the University of Texas, and the subcommittee report indicated that there 

were elevated levels of fraud in the PPP, I can tell you that 

WebBank provided over 117,000 loans for over $3 billion in the 

PPP. And in that same McCombs study, our lending was equated 

with that of traditional lenders because we did not see escalated 

fraud rates. 

And, in fact, we actually received a letter from the Financial 

Crimes Enforcement Network (FinCEN), which I included in my 

written testimony, that thanked us for our Bank Secrecy Act (BSA) 

program because it did lead to information that was the basis for 

successful prosecution of a PPP fraud. 

Mr. TIMMONS. Sir, I would argue that the PPP loan program was 

legislatively flawed. It was not implemented poorly. We needed to 

have better protections on our end. 

Open banking has the potential to revolutionize the financial 

services industry by allowing third-party developers and financial 

institutions to access and share consumer financial data in a secure 

and standardized manner. 

Along these lines, the CFPB recently issued a long-anticipated 

notice of proposed rulemaking (NPRM), further defining Section 

1033 of the Dodd-Frank Act, which serves as a first step to creating 

clear rules of the road for data sharing between banks, data 

aggregators, and third-party fintech developers. 

Mrs. Kelley, again, what lessons can we learn from rules similar 

to Section 1033 in other jurisdictions such as Europe? And did the 

CFPB correctly implement these lessons in the NPRM? 

Mrs. KELLEY. Thank you for the question. As you can imagine, 

we are working our way through the NPRM and will be commenting as it is, in fact, a very lengthy document. 

But we welcome movement on the open banking front. We do 

think it has the possibility to revolutionize the financial system, including through payments. What we have seen as we look in other 

jurisdictions that have implemented open banking rules is the need 

to ensure that the incentives are aligned, that industry has the incentives to engage in these partnerships, which we think are the 

ones that are going to unlock the key. 

Mr. TIMMONS. Sure. Quick followup: The NPRM scope is currently limited in nature to the use of checking and prepaid accounts, credit cards, and digital wallets. What would the pros and 

cons be of expanding the scope of 1033 from the CFPB’s initial 

NPRM to other financial tools? 

Mrs. KELLEY. From our perspective, obviously, we are focused on 

payments. ETA is a payments trade association, so we are focused 

on payments, and we think that is appropriate. It has obviously 

been a long time coming, and we are going to work through this 

NPRM first. 

Mr. TIMMONS. Thank you. 

Dr. Lenz, in an article that you co-authored, you advocated for 

the advancement of legislation that will create a Federal regulatory 

sandbox to help fintech startups better navigate the thicket of existing regulations. 
31 

Can you describe why you think a Federal regulatory sandbox is 

a legislative solution to foster the development of new financial 

products and services? 

Mr. LENZ. Thank you for the question. Yes, sir. I believe that a 

Federal sandbox is necessary. There are about a dozen States now 

that have sandboxes, which are fantastic, including my home State 

of North Carolina. However, most fintechs don’t want to operate 

within one State; they want to operate nationally. 

So, the opportunity to have a Federal fintech sandbox would 

allow folks to develop new, innovative technologies that could be 

used across the United States, which I think is what everybody 

wants at the end of the day. 

Mr. TIMMONS. Sure. It seems predictability is something we are 

pursuing. 

Thank you, Mr. Chairman. I yield back. 

Chairman HILL. I thank the gentleman from South Carolina. 

The gentleman from Tennessee, Mr. Rose, is recognized for 5 

minutes. 

Mr. ROSE. Thank you, Chairman Hill, for holding this important 

and very timely hearing. And thank you to our witnesses for being 

here today and sharing your time and expertise with us. 

Dr. Lenz, in your written testimony, you noted that the United 

States has been the undisputed leader in financial services around 

the world for the past 75 years, in no small measure due to the 

willingness of its various constituents to take chances and embrace 

innovation. 

Do you worry that there is a risk that the United States might 

overregulate new and emerging fintechs, and could overregulation 

put in peril the current position of the United States as a global 

leader in the financial services industry? 

Mr. LENZ. Mr. Rose, thank you for that question. I do believe 

that overregulation is always going to be problematic, and we it 

has to be checked. I think regulation is appropriate. I think consumer protection is appropriate. However, I think it has to be done 

with incentivizing innovation at the heart of everything we do. 

We do take risks. As I said in my opening statement, that is part 

of what makes us Americans. We have seen what happens, what 

fruit has been borne from that risk-taking. And it is that we are 

the undisputed leader in the world. That has come about because 

we have been incentivized to innovate. 

I think that keeping that sort of incentive open will continue to 

lead us down that path. Problematic regulations can certainly stymie that or slow it down significantly, and I don’t think that is 

where we want to go. 

Mr. ROSE. Thank you. 

Mrs. Kelley, I would like to ask you a similar question. Do you 

worry that overregulation of new and emerging fintechs might 

cause some fintechs to relocate abroad to friendlier jurisdictions 

with less-restrictive regulatory environments? 

Mrs. KELLEY. Thank you for the question. Yes. Again, we are not 

anti-regulation, but we are pro-smart regulation. The regulation 

has to encourage innovation if we are going to continue to see the 

kind of advances that we have seen. So, we are always focused on 

and do worry about regulation that stifles that innovation. 
32 

Mr. ROSE. Thank you. 

And, Mr. Sanz, I will go ahead and pose the same question to 

you. Do you worry that overregulation of new and emerging 

fintechs might cause some fintechs to relocate abroad to friendlier 

jurisdictions? 

Mr. SANZ. Absolutely. I worry that overregulation will have a 

dampening effect on innovation within the U.S., and that it may 

lead to innovation moving abroad. I worry that the current regulatory environment is one that has become so intense that banks 

like my own that have been focused on bank-fintech partnerships 

for 25 years and, arguably, with a source of the FDIC’s proposed 

guidance on how to run those third-party lending platforms the 

right way, is seeing the most-intense regulatory reviews in its history. 

Mr. ROSE. Thank you. 

Mr. Palaniappan, according to a study conducted by Branch, approximately 48 percent of hourly employees have no savings, and 

83 percent have less than $500 saved. 

Will you describe how innovative products like Earned Wage Access are allowing consumers from all walks of life to manage their 

finances differently and in such a way that it could actually help 

them grow savings? 

Mr. PALANIAPPAN. Thank you for your question. We see with 

Earned Wage Access, just with our customers, that our customers 

are avoiding a billion dollars a year in overdraft fees, and that can 

go to savings. We also see other things. 

On the overdraft fees, it was interesting, I met with a customer 

of ours from New York, and when she came to meet with me, she 

brought a journal with 27 days on which she had avoided overdraft 

fees because she used Earnin. So, it is a lot of cost savings. People 

are paying their bills on time and not getting late fees on bills. And 

that is money that can go into savings. 

We also see that incomes go up when someone starts using 

Earned Wage Access. As Congressman Steil mentioned, people are 

actually more eager to work and they get more shifts and they get 

overtime. 

Lots of my customers cannot afford to put $50 or $100 in their 

gas tank, so they fill up $10 at a time. If something unexpected 

happens and they can’t buy gas, they used to miss work. Now, they 

can download the previous day’s earnings and they go into work. 

They are working about 3 hours more per week. 

There are lots of interesting things. If you work in retail, there 

are different types of jobs. At some jobs, you are tied to a particular 

store. And there are other roles where you are tied to a department 

and you work across multiple stores and that role pays higher. 

One of our customers was offered a higher-paying role and did 

not take it because she could not afford to front the gas money and 

wait for reimbursement. 

Mr. ROSE. Thank you. I appreciate your answers. 

And I yield back. 

Chairman HILL. The gentleman yields back. 

I ask unanimous consent to submit a letter to the record dated 

October 23, 2023, from the American Fintech Council to the Center 

for Responsible Lending about their report on Earned Wage Access. 
33 

Without objection, it is so ordered. 

And I want to join my friend, the ranking member, in welcoming 

our former colleague, Lacy Clay, to the hearing room today. We 

miss Mr. Clay on this committee. And I want you to know that 

your relatives, both current and former, in Arkansas are well-represented in the Second Congressional District. 

I want to thank all of the witnesses for their testimony today. 

This was an excellent panel. 

The Chair notes that some Members may have additional questions for this panel, which they may wish to submit in writing. 

Without objection, the hearing record will remain open for 5 legislative days for Members to submit written questions to these witnesses and to place their responses in the record. Also, without objection, Members will have 5 legislative days to submit extraneous 

materials to the Chair for inclusion in the record. 

With that, this hearing is adjourned. Thank you. 

[Whereupon, at 11:44 a.m., the hearing was adjourned.] 

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