RI: Testimony in Opposition to Rhode Island HB 7941

TO: The Rhode Island House Committee on Corporations

FROM: Hon. Phil Goldfeder, CEO, American Fintech Council (AFC)

DATE: March 26, 2024

SUBJECT: House Bill 7941

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Position: Oppose.

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Testimony:

Thank you Chair Solomon, Vice-Chairs O’Brien and Caldwell, and members of the HouseCommittee on Corporations for providing me the opportunity to testify before you in oppositionto House Bill 7941 (HB 7941). My name is Phil Goldfeder, I served as a senior advisor to SenateMajority Leader Chuck Schumer, and I am a former state legislator from the state of New York. Inow continue in my public service as the CEO of the American Fintech Council (AFC).

As CEO of a standards-based trade association representing responsible fintech companies of allsizes and their innovative partner banks, I recognize that not all bank-fintech partnerships arecreated equal. AFC members do not offer loans above 36 percent interest. Unfortunately, this billis a blunt and legally questionable legislative solution for an issue that requires nuance and willend up harming consumers.

Simply put, HB 7941will diminish access to credit for Rhode Islanders. Under the current law,state-chartered community banks can partner with fintech companies to offer much needed, safeand affordable, credit to consumers. Again, AFC members do not offer loans above 36% interestrate. If passed, this bill will significantly decrease the supply of affordable credit in Rhode Islandat a time when, according to the CFPB, credit card interest rates are at an all-time high and beingdriven by a lack of competition.

This bill upsets the competitive balance in the financial services industry and puts state-charteredbanks at a significant disadvantage as compared with national banks. Rhode Island interest ratecaps apply only to state-chartered banks; national banks can continue charging at the higher ratespermitted under federal rules.

It is important to note that this bill is based on the ideas of a small group of Iowa lawyers, whoclaim that Iowa’s decision to opt-out of rate exportation allowed in the Depository InstitutionsDeregulation and Monetary Control Act (DIDMCA)proved beneficial for their consumers,without proving that with any data. However, based on an analysis of AFC’s members, each yearat least 250,000 Iowans are missing out on loans at responsible rates, totaling approximately$300 million. This hardly seems like a robust lending environment.

If passed, HB 7941 will decrease access to responsible credit as it did in Iowa, put communitybanks at a disadvantage and leave many Rhode Islanders— particularly those in minoritycommunities— with no option but to rely on far too many predatory and high-interestalternatives. Consumers once responsibly served through bank-fintech partnerships will noweither have no option for credit or be forced to engage with high-interest payday or predatorylenders or nationally chartered banks that are not beholden to Rhode Island’s interest rate cap.

In addition, just this week, the American Fintech Council brought legal action against the state ofColorado for their action on a similar bill. Opting out of DIDMCA is not legally valid nor is itsound public policy. The Colorado law, which is based on a fringe legal theory from a smallgroup of lawyers in Iowa, is invalid on its face. Colorado does not have the right to set rates andfees for state-chartered banks that are not actually making loans, as defined under federal law, inColorado. HB 7941 would face the same legal issues as the Colorado law if passed.

I do not want the same scarcity of lending options in Iowa to befall Rhode Island consumers aswell, nor do I want Rhode Island to face the same legal challenge as Colorado. Therefore, Irespectfully request that this committee table this bill to consider the nuance needed to properlysolve the issues discussed, and not harm the hundreds of thousands of Rhode Islanders beingresponsibly served by AFC members. I thank you again for the opportunity to raise my concernsregarding HB 7941 and I am open to answering any questions.