Perlmutter Holds Subcommittee Hearing to Examine Trends in Financial Institution Charters to Ensure Sufficient Oversight and Consumer Protection

Washington, D.C. – Today U.S. Rep. Ed Perlmutter (CO-07) convened a Subcommittee on Consumer Protection and Financial Institutions hearing to review modern trends in financial institution charters and examine the best way to regulate companies that behave like banks but operate without full banking regulations.

The majority of witnesses in today’s hearing have connections to Colorado, including Erik Gerding, a Professor of Law and Wolf-Nichol Fellow at the University of Colorado Law School; Carlos Pacheo, CEO of Premier Members Credit Union in Colorado; and Brian Brooks, former Acting Comptroller of the Currency from May 2020 to January 2021 who is from Pueblo, Colorado.

In recent years, financial technology firms have increasingly sought unconventional bank charters, such as an industrial loan company (ILC). These companies behave like a bank and offer services similar to traditional banks yet are not required to comply with all banking regulation and provide fewer safeguards for consumers. Unlike most banks, ILCs are exempt from the Bank Holding Company Act, meaning they are not subject to the law’s restrictions relating to operating commercial enterprises – a principle often referred to as the separation of commerce and banking – and they are not subject to consolidated supervision by the Federal Reserve. Fintech companies are rapidly changing the financial industry and influencing how consumers engage with the financial system, but they also raise concerns that the current legal and regulatory framework is not equipped to regulate their activities or protect consumers. For instance, in late 2020, fintechs were identified as taking part in the majority of fraudulent lending during PPP lending activity as opposed to traditional banks, raising concerns they were not being adequately supervised.

“Many of the recent innovations in the area of financial technology have the ability to provide greater access for more consumers to engage with the financial system, but we need to ensure our regulatory system can keep up and consumers are protected. This hearing is a good first step in examining the best way to regulate these companies to ensure sufficient oversight and stability in the economy,” said Perlmutter.

In his opening statement, Perlmutter remarked:

“In 1863, President Lincoln signed the National Currency Act into law, taking the first step in establishing the national banking system. One of the primary goals of the National Currency Act and subsequent National Bank Act, was the standardization of currency to protect consumers against uncertainty in the valuation of bank notes, rampant counterfeiting, and fraud. 

“In his 1864 address to Congress, President Lincoln said, “That the government and the people will derive great benefit from this change in the banking systems of the country can hardly be questioned. The national system will create a reliable and permanent influence in support of the national credit, and protect the people against losses in the use of paper money.” At the heart of our banking system is a promise of consumer protection and benefit to the people. President Lincoln knew our national banking system needed to be reliable, stable, honest, consistent across all the states, and effective. 

“Over the last 150 years, the banking system has changed a great deal, but its core mission to serve the people by taking deposits, offering credit, facilitating transactions, and intermediating transactions remains principally the same. In recent years, a variety of nonbank and fintech companies have sought to engage in the business of banking or in activities very similar to banking. Few of these companies have sought traditional banking charters, either because they are wary of the additional regulation and supervision that comes with being a bank, or because the structure of their business does not fit squarely within a traditional charter. Many of the unconventional charters do not come with the same level of regulation and supervision traditional charters require.

“Despite the innovations of the last ten years, many of the questions we will be discussing today are not new. Industrial Loan Companies have been around since 1910, and the debate over the separation of banking and commerce predates even the National Currency Act. In recent years, the Office of the Comptroller of Currency has granted fintech companies banking charters, but the debate about what constitutes the business of banking and what makes banks special, is a much older conversation.

“We do not want to slow innovation, but it is the Congress’ duty to ensure change comes at the benefit and not the detriment of the people. As the economy continues to reopen from the pandemic, it is important our financial system remains stable and strong, and consumers are treated fairly and honestly. Most banks and credit unions have been a source of strength in the pandemic in part because of the stringent capital, liquidity, and other regulatory requirements we place on these financial institutions.  

“I look forward to the discussion in this hearing to explore financial stability risks, consumer protection issues, market fairness questions, and potential benefits of unconventional banking charters. Additionally, I would like to ask both the committee members and witnesses today to consider how we can encourage innovation alongside strong consumer protections, diversity, and inclusion in our banking system.”


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