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SBC New Consumer Financial Products and the Impacts to Workers Hearing

Senate Committee on Banking, Housing, & Urban Affairs                                                         

New Consumer Financial Products and the Impact to Workers

Tuesday, September 13, 2022

Topline

  • Senators on both sides agreed that consumers should have truthful and accurate information about the products they are interacting with.
  • Democrats agreed that the products like Buy Now Pay Later (BNPL), Earned Wage Access (EWA), and Training Repayment Agreement Provisions (TRAPs) could use more regulation.

Witnesses

Opening Statements
Chairman Sherrod Brown (D-Ohio)

In his opening statement, Brown discussed how new financial products trap consumers and workers in debt under the guise of innovation and are often not well-designed, transparent, or regulated. He also noted his displeasure with Training Repayment Agreement Provisions (TRAPs). 

Ranking Member Patrick J. Toomey (R-Pa.)

In his opening statement, Toomey emphasized the advantages of competition and innovation to deliver the best outcomes to consumers. He said consumers who are given truthful and accurate information about products are best positioned to choose what is best for them. Toomey pointed out that Buy Now Pay Later (BNPL) and Earned Wage Access (EWA) programs include those who are often left out of the traditional finance system.

Testimony

Ms. Rachel Gittleman

In her testimony, Gittleman said that these products should at least be covered by basic consumer protections at the state and federal level because they all deal with credit at their core. She also pointed out that these products are disproportionately used by and marketed to low-income and minority consumers.

Ms. Penny Lee

In her testimony, Lee listed the merits of BNPL and EWA programs. She explained that BNPL allows consumers to manage cash flow, supports small businesses, and is subject to anti-money laundering, fair lending, and debt collection laws. Lee also said EWA allows workers flexibility. 

Professor Todd J. Zywicki

In his testimony, Zywicki said BNPL and EWA programs are good examples of fintech improving consumer welfare and competition. He pointed out that the use of BNPL increased dramatically during the pandemic and that young consumers have less access to credit and banking, so BNPL is helpful. Zywicki said he is concerned about premature regulations that would impose unnecessary costs.

Mr. David H. Seligman

In his testimony, Seligman said that difficulty meeting financial needs arises because workers do not earn a living wage or have a predictable schedule. He said employer-driven debt keeps workers from advancing to better opportunities, and that federal agencies must provide vigorous oversight in this space.

Question & Answer

Buy Now Pay Later

Brown asked if BNPL programs fall within existing consumer protections. Gittleman said they do. Brown asked if they underwrite or assess a consumer’s ability to repay. Gittleman said no and that there is no way to verify how many loans they have.

Toomey asked about the best way to regulate BNPL products and if they were understood by consumers. Zywicki said the focus should be on protecting consumers and promoting innovation and competition. Lee cited two studies: one found that 99% of consumers who use BNPL understand the conditions, and the other found that 94% of consumers understood. She also said that less than 4% of BNPL users incur late fees, and that 85-87% of BNPL revenues come from merchant fees, not late fees.

Sen. Mark Warner (D-Va.) noted that while some of these technologies bring real benefits, we also need to focus on the challenges. He asked the panel how lawmakers can ensure consumer protections in the non-banking sector. Gittleman and Seligman both said that the protections and frameworks exist. Lee said they can enter into state agreements under money transmitting licenses or bank fintech partnerships. She also said they can pursue a voluntary charter. Zywicki said a hodge podge of state regulations can be a problem and recommended that the Consumer Financial Protection Bureau (CFPB) be given charter authority.

Sen. Jack Reed (D-R.I.) asked Gittleman which consumer protections laws apply to BNPL, and she said that most should. 

Earned Wage Access

Brown asked if EWA products fall within existing consumer protections. Gittleman said yes. Toomey asked about the ideal way to regulate EWA. Zywicki responded with the same answer he gave for BNPL.

Training Repayment Agreement Provisions

Brown asked if TRAPs are considered credit and limit worker mobility. Seligman said they do limit mobility, adding that that they should be covered by protections. Sen. Catherine Cortez Masto (D-Nev.) said she was shocked to hear about TRAPs among nurses. Gittleman said they are becoming more and more prevalent.

For more information on this hearing, please click here.

For an archive of past SIFMA hearing coverage, please click here.