Witnesses urge regulatory clarity for fintechs – but it’s a complex road ahead

Regulations clarifying the role of financial technology entities – or “fintechs” – in making loans and taking deposits are needed, but the types of regulations will depend on the types of “fintechs” they affect, witnesses told a House subcommittee Tuesday.

Testifying before the House financial institutions and consumer credit subcommittee, a panel of experts in the area of financial services gave lawmakers their views of how to regulate the growing fintech marketplace.

“Fintech” is broadly defined as a nonbank financial services company offering consumer credit, some payments, some insurance, some investment services, and some financial advice, typically via the Internet.

Brian Knight, director of the program on financial regulations and a senior research fellow at the Mercatus Center at George Mason University in Fairfax, Va., urged lawmakers to consider three actions affecting fintechs:

  • Clarify existing regulation, particularly around lending;
  • Modernize regulation to eliminate barriers to competition from fintechs and other new firms;
  • Give regulators some flexibility to foster a regulatory environment where experiments with “innovative services” may be developed (in concert with consumer protection).

Echoing that approach was Brian Peters – who heads up Financial Innovation Now, a Washington, D.C., group which counts as members Amazon, Apple, Google, Intuit, and PayPal – recommended a “modernized financial regulatory structure” to keep pace with innovation and meet consumer and commercial demand. “The current structure is needlessly fragmented and inconsistent among federal regulators, and varies widely across state jurisdictions,” he said.

But law professor Adam J. Levitin of Georgetown University Law Center in Washington, D.C., cautioned the lawmakers that there are a number of gray areas.

“The main point I wish to make today is that the term ‘fintech’ covers a broad array of nonbank financial services companies,” Levitan said. “Some of these companies offer payment services and some credit services. Some compete with banks, and some partner with banks. Many are good actors, but unfortunately some are not. All of this means that different segments of the fintech industry raise different regulatory concerns.”

Hearing entitled “Examining Opportunities and Challenges in the Financial Technology (“Fintech”) Marketplace”