Predatory banking practices including Student Loan Services among the topics were buy now pay later and the perceived benefits of earned wage access. [inaudible conversations] the Senate Committee on banking, housing and anothers will come to order. We apologize for the delay this morning. We dont like to start the hearing blade but sometimes we have to. Thank you for joining. Its good to see all of you. If youve been before the committee or worked around, thank you especially to those of you. The hearing is in a hybrid format and the witnesses are in person. Witnesses have the option to appear in person or virtually. Hardworking payoff for everyone as the American Dream and the dignity of work is all about the concept that was spoken of in the late 19th and early 20th centuries and popularized by doctor king. When work has dignity you can support yourself and your family and future but we all know whats happened over the last four decades. Corporate profits have gone up, the stock market soared, executive compensation has exploded. The wages havent kept up with a costofliving. Millions of workers with fulltime jobs who aspire to the middle class cant join no matter how hard they work and even people we may define as middleclass dont feel much security and stability. When workers are forced to find ways to make up for the gap between what they are paid and what they should earn what are they left with, debt. Sometimes people have to borrow money, products that are welldesigned and transparent and regulated can help workers pay off an unexpected car repair or help with a grocery bill recovery a medical expense. But as we heard in the listening session with workers last week and the committee, too often the products are not welldesigned they are really transparent and not well regulated for far too many workers the only credit products available lead to more debt and more financial instability. Weve discussed the impact the predatory payday lenders have on working families. Today we examine the impact of some new Consumer Financial products have on workers and Companies Tell Us the products are innovative, easy to use and give people more options but so often innovation is just a new way for companies to make money while trapping people and data. In debt. New credit products by now pay later could help pay for products and installments with strong Consumer Protections yet many come with hidden fees and lack of transparency, they are not underwritten properly and encourage consumers to use the plans for multiple purchases into multiple Online Stores racking up debt they cant afford to repay. Consumers like Breonna Taylor as a College Student she started off with one of these loans first one company then two then three and one told her they were raising the credit limit from 100 to 2,000 initially 18yearold she wasnt concerned as she put it if the companies believed in my ability to repay my debt than i did. Without the approval of more and more credits she was juggling 1,500 in loans with a different payment date throughout the month her account kept getting overdrawn. Her story gets to the core of the problem with little to no underwriting by now and Pay Later Companies dont know if they are the only ones a consumer has credit worth. Giving out disclosures a consumer is left in the dark to work for consumers we need the companies rules to follow and proper disclosure. There are new Consumer Products that use the socalled tips model structuring themselves to deliberately avoid disclosing the terms specifically avoiding important disclosures required by the truth in lending act, products like overdraft coverage, earned wage advances that are not offered in conjunction with employers models or consumers are asked to pay the tip to the lender instead of a fee or Interest Rate to use the products. Companies claim because the tip isnt presented as a finance charge or Interest Rate through lending and other Protection Laws like military lending laws that do not apply. It is voluntary they say, but of course they are not volunteering at all its a way to keep the system and hide the cost of workers. Employerbased advantages with strong Consumer Protections can in fact help cover unexpected expenses and build a better alternative would simply be for the companies to pay their workers enough to live on. Then there are debts products that are so predatory and so offensive they should have no place in our Financial System schemes like training, repayment agreement provisions appropriately known as traps and i will say this for the term that was invented its certainly truth in advertising the provisions and Employment Contracts allow employers to recoup the cost of those that leave the job and its an offensive concept if the employees job is to train the workers on the job training is into some special perk for the workers it is a smart investment for companies to require to be back for training if they leave the job within a certain period of time sadly workers with debt. Its a modernday version of the script the left by their employers. Remember what ernie ford is saying about you load 16 tons and what do you get another day older and deeper in debt. Employers use them to prevent workers from pursuing higher paying opportunities and decide how much the training would supposedly cost on the market and go after the workers threatening their credit and economic mobility. Last week cassie told members of the kennedy about her experience and pursuit of the calling as a nurse at the start of the job the employer made her sign a contract buried in the final print left she would be indebted to her employer for 7500 for the suppose that a training they provided which she decided to leave after the year because of the bad Work Environment her employer took a thousand dollars out of the second to last paycheck to pay back her training that was have her pay check the former employer told her they would send the rest to collections. Last i checked it was a legal in the United States but it looks like some enterprising companies are rebranding it with these contracts and that is the focus of todays hearing to ensure socalled innovation isnt a substitute for good pay and his isinto the cost of workers dignity. Senator. Thank you, mr. Chair manan thank you kindly for delaying the start of the hearing and to the witnesses. I was unavoidably delayed and i appreciated the accommodation of todays hearing about the new Consumer Financial products in the last decade we have seen Financial Institutions develop technology and solutions to meet the consumers needs. The choices create a more competitive marketplace all of which benefits consumers as long as they have truth. Best position to decide what products to use. Any regulation of the products should fit the type and make room for innovation and maximize the Consumer Choice. Too often the response from some of my friends on the other side of the aisle is to see something new and cannot. Lets talk about the new product is one of them is called the by now and pay later. Typically allowing consumers to make a purchases now and read pay them for interestfree installments later. The service can be a very attractive way to manage their cash flows to obtain the Services Without paying any interest. That is especially true for consumers who dont have or dont want to use their credit card for such purchases this may explain why its most popular among the younger consumers with shorter Credit Histories and if customers are late with payments, the companies sensibly suspend purchases until they are paid and some charge a late fee they pay a small percentage to offer the service and retailers that are willing to do this because they dont have to pay credit card interchange fees would increase sales and Customer Loyalty another new Financial Product provides shortterm funding is earned wage access. At the service can be appealing alternative to payday loans for workers who want an advance on the wages. They can help consumers lead to such expenses and others by advancing them the amount of income theyve earned at that point in the pay period. There are various products available and in some cases employers pay the fee for the service as an Employee Benefit while in others consumers must pay the fee. According to a recent study the average fee of the user paid for advance was between 2. 59 and 6. 27. Less than 5 the amount advanced. Ensure the marketplace competition successfully generated more and cheaper Online Options for many consumers to meet their needs. This is a reminder that the Market Competition is typically better at helping consumers down the government whether the product of the services in the Financial Sector or some other category. Other new Financial Products include forms of credit that exist for a long time but with innovations and how they are provided. In recent years the institutions primarily Community Banks have begun to partner with Financial Technology companies to offer improved products and reach more consumers. Banks and partners offer a large variety of credit products including small dollar personal auto in a Small Business loans as well as credit cards, mortgages and home equity credit lines. These can generate a significant consumer benefits by lowering the price expanding Consumer Choice and increasing competition. Often they provide access to credit for higher risk such as consumers with low incomes or no Credit History all through highly supervised Financial Institutions. Unfortunately, some bureaucrats and some lawmakers seem to react with hostility to almost any new Financial Products. Democrats in congress have branded the Bank Partnerships in general as in rent a bank schemes. Last year they overturned a rule that provided regulatory certainty for the partnerships. Unfortunately by attacking legitimate Bank Partnerships come our democratic colleagues risked restricting access to needed credit for lower income consumers and then theres the cfpb under director chopra theyve repeatedly demonstrated hostility to innovation and Consumer Finance markets for example the director has replaced the cfpbs office of innovation with the new office of competition innovation to advance his efforts to involve the cfpb and antitrust and competition law which is outside its jurisdiction. He also sidelined the office of Innovation Program to foster the invasion such as no action letters and regulatory sandboxes. Im also concerned they will bring this reactive antiinnovation perspective to his scrutiny of new Financial Products and already its made public statements to suggest hostility towards other products. All this hostility to the new products is evidence of the paternalism that we see sometimes in financial regulation. Individual consumers are better positioned in any bureaucrat or politician to understand their own individual needs and preferences and to make their own choices. Some of my colleagues ignore the benefits they derive from access to more choices in a more dynamic marketplace. The best form of Consumer Protection is a robust competitive market. Thats why instead of curtailing the new Financial Products that regulation should facilitate innovation and Consumer Choice. Thank you. I will introduce the four witnesses left to right the Financial Services outreach Consumer Federation of america. She leads the advocacy and outreach of highcost blending payday loans into their banking and credit issues. The ceo of the Financial Technology association served previously as the chief Strategy Officer of the Technology Incubator she previously served as the Senior Advisor to the Senate Majority leader harry reid. The professor is somewhat of a regular in the committee as the George Mason University professor of law at the segoviaa school of law a senior fellow at task force in federal Consumer Financial law in 2020. Welcome. The executive director towards justice litigated several class and collective actions to systemic injustice in the labor market and clerked for the chief judge for the district in massachusetts. If you could begin your testimony. Thank you. Chair man brown, Ranking Member, members thank you for the opportunity to testify before you today. Im the Financial Service outreach manager and a Nonprofit Association of the National State and local consumer groups focused on advancing the consumer interest through Research Advocacy and edification. New Consumer Credit products are exploding across the market areas. Some of the models, schemes and provisions discussed today or inherently deceitfully and predatory and others may help certain consumers manage their finances. But even those are not riskfree. Regardless of their core each of the products discussed our credit they provide funding for the promise of funding today and are repaid later and should be covered by basic Consumer Protection at the state and federal level especially given that they are disproportionately used by the end marketed to lower income consumers and consumers of color. By now later for the purchase upfront and the rest of the debt in three often interestfree installments over a set period. Plus they can last for the ability to repay leading to unmanageable amounts of debt consumers can face cascading fees, negative credit reporting, Debt Collection and difficulty with disputes and refunds. Earned products are funds advanced by the third party to a consumer before the regular payday. These wage advances are ostensibly lowercost forms of a payday loan requiring workers to pay to get paid and they can lead to the same cycle of borrowing as other payment loans even Free Products may still create a whole next weeks paycheck leading to a cycle of debt. The advances overdraft protection and other cash advanced products that collect or simply disguising under a new name like in a restaurant or Service Setting were unlike those they do not go to another human being but rather to the companys bottom line. The true cost isnt clear to consumers and the tips add up quickly costing nearly as much as traditional payday loans in some instances. Hidden deep in the Employment Contracts, the training payment provisions trapped consumers in the low paying jobs by requiring the repayments of the large fees for onthejob training or orientation. This is enforced if the consumer leaves either voluntarily or not before the arbitrarily determined state. The consumer is trapped with ofe threat of high Interest Rates should be viewed and regulated as such. They recommend state and federal regulators supervise to ensure they are compliant with credit, fair lending and consumer Protection Laws and not engaging in the discrimination or unfair or deceptive or abusive actual practices. Regulators should examine the pricing models and providers should only offer products after determining the consumers ability to repay. A load should be structured in an affordable way with proportional penalties. The cost of credit should be portrayed to consumers is an annual percentage so they can compare the products. Consumer data should be used in a responsible, transparent manner. State regulators, state and federal should collect, analyze and publish to better understand and eliminate the risk of the products into state and federal regulators should work across agencies and levels of government to ensure consumers are protected and actors are held accountable. Oversight is especially needed as each of the product sees either disproportionately used by or marketed to low income consumers and consumers of color without meaningful holistic underwriting, affordable rePayment Options and Price Transparency products may do more to exacerbate financial exclusions rather than promote financial inclusion. Each of th