Financial Institution-Fintech Partnerships: Leveraging Third-Party Relationships (Field Hearing)

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Transcript of the field hearing Financial Institution-Fintech Partnerships: Leveraging Third-Party Relationships to Increase Access to Financial Services, before the Subcommittee on Financial Institutions and Monetary Policy of the Committee on Financial Services, on July 12, 2024 (Serial No. 118–103), in Lexington, Kentucky. Hon. Andy Barr, Chairman of the Subcommittee, presided and gave the opening statement. Witnesses were Mr. Kirk Chartier of Enova, Mr. Steve Trager of Republic Bank and Trust Company, Mr. Mike de Vere of Zest AI, Ms. Karen Harbin of Commonwealth Credit Union and Ms. Amy Roberti of Stripe, each with a prepared statement. The subcommittee adjourned at 11:19 a.m.

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FINANCIAL INSTITUTION-FINTECH
PARTNERSHIPS: LEVERAGING THIRD-PARTY
RELATIONSHIPS TO INCREASE ACCESS
TO FINANCIAL SERVICES

FIELD HEARING
BEFORE THE

SUBCOMMITTEE ON FINANCIAL
INSTITUTIONS AND MONETARY POLICY
OF THE

COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTEENTH CONGRESS
SECOND SESSION

JULY 12, 2024

Serial No. 118–103

Printed for the use of the Committee on Financial Services

(
www.govinfo.gov

U.S. GOVERNMENT PUBLISHING OFFICE
56–908 PDF WASHINGTON : 2026
HOUSE COMMITTEE ON FINANCIAL SERVICES
PATRICK MCHENRY, North Carolina, Chairman

FRENCH HILL, Arkansas, Vice Chairman MAXINE WATERS, California, Ranking
FRANK D. LUCAS, Oklahoma Member
PETE SESSIONS, Texas SYLVIA R. GARCIA, Texas, Vice Ranking
BILL POSEY, Florida Member
BLAINE LUETKEMEYER, Missouri NYDIA M. VELÁZQUEZ, New York
BILL HUIZENGA, Michigan BRAD SHERMAN, California
ANN WAGNER, Missouri GREGORY W. MEEKS, New York
ANDY BARR, Kentucky DAVID SCOTT, Georgia
ROGER WILLIAMS, Texas STEPHEN F. LYNCH, Massachusetts
TOM EMMER, Minnesota AL GREEN, Texas
BARRY LOUDERMILK, Georgia EMANUEL CLEAVER, Missouri
ALEXANDER X. MOONEY, West Virginia JAMES A. HIMES, Connecticut
WARREN DAVIDSON, Ohio BILL FOSTER, Illinois
JOHN W. ROSE, Tennessee JOYCE BEATTY, Ohio
BRYAN STEIL, Wisconsin JUAN VARGAS, California
WILLIAM R. TIMMONS, IV, South Carolina JOSH GOTTHEIMER, New Jersey
RALPH NORMAN, South Carolina VICENTE GONZALEZ, Texas
DANIEL MEUSER, Pennsylvania SEAN CASTEN, Illinois
SCOTT FITZGERALD, Wisconsin AYANNA PRESSLEY, Massachusetts
ANDREW R. GARBARINO, New York STEVEN HORSFORD, Nevada
YOUNG KIM, California RASHIDA TLAIB, Michigan
BYRON DONALDS, Florida RITCHIE TORRES, New York
MIKE FLOOD, Nebraska NIKEMA WILLIAMS, Georgia
MICHAEL LAWLER, New York WILEY NICKEL, North Carolina
ZACHARY NUNN, Iowa BRITTANY PETTERSEN, Colorado
MONICA DE LA CRUZ, Texas
ERIN HOUCHIN, Indiana
ANDREW OGLES, Tennessee

Matthew Hoffmann, Staff Director

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS AND MONETARY POLICY
ANDY BARR, Kentucky, Chairman

BARRY LOUDERMILK, Georgia, Vice BILL FOSTER, Illinois, Ranking Member
Chairman AYANNA PRESSLEY, Massachusetts, Vice
BILL POSEY, Florida Ranking Member
BLAINE LUETKEMEYER, Missouri NYDIA M. VELÁZQUEZ, New York
ROGER WILLIAMS, Texas BRAD SHERMAN, California,
JOHN W. ROSE, Tennessee GREGORY W. MEEKS, New York
WILLIAM R. TIMMONS, IV, South Carolina DAVID SCOTT, Georgia
RALPH NORMAN, South Carolina AL GREEN, Texas
SCOTT FITZGERALD, Wisconsin JOYCE BEATTY, Ohio
YOUNG KIM, California JUAN VARGAS, California
BYRON DONALDS, Florida SEAN CASTEN, Illinois
MONICA DE LA CRUZ, Texas
ANDREW OGLES, Tennessee

(II)
C O N T E N T S

Friday, July 12, 2024

OPENING STATEMENTS
Page
Hon. Andy Barr, Chairman of the Subcommittee on Financial Institutions
and Monetary Policy, a U.S. Representative from Kentucky ........................... 1

WITNESSES
Mr. Kirk Chartier, Chief Strategy Officer, Enova ................................................ 4
Prepared Statement ......................................................................................... 6
Mr. Steve Trager, Executive Chair, Republic Bank and Trust Company ........... 13
Prepared Statement ......................................................................................... 15
Mr. Mike de Vere, Chief Executive Officer, Zest AI ............................................. 20
Prepared Statement ......................................................................................... 22
Ms. Karen Harbin, President and Chief Executive Officer, Commonwealth
Credit Union ......................................................................................................... 32
Prepared Statement ......................................................................................... 34
Ms. Amy Roberti, Global Head of Public Policy, Stripe ....................................... 39
Prepared Statement ......................................................................................... 41

(III)
FINANCIAL INSTITUTION-FINTECH
PARTNERSHIPS: LEVERAGING THIRD-PARTY
RELATIONSHIPS TO INCREASE ACCESS
TO FINANCIAL SERVICES

Friday, July 12, 2024

U.S. HOUSE OF REPRESENTATIVES,
SUBCOMMITTEE ON FINANCIAL INSTITUTIONS
AND MONETARY POLICY,
COMMITTEE ON FINANCIAL SERVICES,
Washington, DC.
The subcommittee met, pursuant to notice, at 10 a.m., at 401
Cross Street, Lexington, Kentucky, Hon. Andy Barr, Chairman of
the Subcommittee, presiding.
Present: Representatives Barr, Rose, and Fitzgerald.
Also present: Representatives Sessions and Flood.
Chairman BARR. The committee will come to order. Without ob-
jection, the chair is authorized to declare a recess of the committee
at any time.
This hearing is titled, ‘‘Financial Institution-Fintech Partner-
ships: Leveraging Third-Party Relationships to Increase Access to
Financial Services.’’
Without objection, all members will have 5 legislative days with-
in which to submit extraneous materials to the chair for inclusion
in the record.
I now recognize myself to give an opening statement.
OPENING STATEMENT OF HON. ANDY BARR, CHAIRMAN OF
THE SUBCOMMITTEE ON FINANCIAL INSTITUTIONS AND
MONETARY POLICY, A U.S. REPRESENTATIVE FROM KEN-
TUCKY
Welcome. Welcome to all to Kentucky’s Sixth Congressional Dis-
trict. I want to thank all of our witnesses here today, and my col-
leagues who were able to make today’s hearing in central Ken-
tucky, the great Commonwealth of Kentucky.
I want to thank in particular my colleagues Congressman Ses-
sions from Texas, Congressman Rose from Tennessee, Congress-
man Fitzgerald from Wisconsin, and Congressman Flood from Ne-
braska, all great patriots and friends and colleagues.
It is great to see all of you as well, numerous friends and neigh-
bors, especially the financial services industry right here in the
Commonwealth of Kentucky. I see many friends from the banking
and the credit union industry here in Kentucky. Thank you. Wel-
come to all of you for participating today.
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I want to especially thank at the outset Deirdre Lyons and Mark
Lyons. Mark had to be in Brazil today for the company but to
Alltech and all of the leadership at Alltech. Brad, thank you for
helping to organize as well, Brad Harris, the general counsel.
Deirdre Lyons, I just want to say at the outset, this is her beau-
tiful facility, part of the Alltech family of businesses, the Lexington
Distilling and Brewing Company. For those of you who do not
know, it is altogether appropriate that this is the venue, Alltech is
the venue for a hearing where we are exploring cutting edge inno-
vation, because there is no company in Kentucky, my congressional
district, I would argue in the country and in the world that is as
innovative as Alltech has been over these last 40 years.
Dr. Pearse Lyons and his wife Deirdre immigrated to the United
States from Ireland with an entrepreneurial spirit, and they are lit-
erally the epitome of the American dream, having built this animal
nutrition, brewery, distilling business empire. We are just so grate-
ful, Deirdre, for your hospitality and for welcoming us here in this
wonderful facility. We are very proud of our bourbon heritage here
in central Kentucky, and so thank you for all you do for our com-
munity.
In this subcommittee, I have been honored to have great col-
leagues on both sides of the aisle, including Ranking Member Bill
Foster from Illinois, who unfortunately cannot be with us today,
but sends his regards. This journey that we are on in financial in-
clusion has been a bipartisan enterprise and we appreciate Dr. Fos-
ter for his collaboration.
On both sides of the aisle, there has been keen interest in fos-
tering the prosperity of community banks and credit unions and
the businesses that they serve. It is fair to say that there is joint
concern that our banking system has been losing some of its dyna-
mism and breadth. We do not want to end up with a barbell bank-
ing system, with a lot of too-big-to-fail banks, big Wall Street
banks, money center banks on one end, and a scattering of small
institutions on the other, and not much in between.
The strength of our financial system in the United States is its
diversity, and that is what we are here to talk about today. This
hearing is about bank and community financial institutions, credit
unions’ partnerships with financial organizations that provide so
much innovation and community banks and credit unions
partnering with these organizations that engage in business activi-
ties with them often are referred to as third-party vendors.
Such partnerships which increasingly involve vendors that em-
ploy innovative technologies can allow more efficient provision of fi-
nancial services to consumers and businesses of all sizes. With ad-
herence to prudent risk management of these relationships, finan-
cial institutions can better serve communities, including facilitating
expanded opportunities and inclusion in the form of access to finan-
cial services to those who may be less likely to access financial
services through traditional bank products.
Efficiencies include servicing clients in a timelier manner, im-
proved compliance with legal and regulatory requirements, better
management of operational risk, lower cost transactions, reduced
friction in payments, and enhanced data protection.
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As innovation in the provision of financial services accelerates, it
remains important that a proper balance be struck between fos-
tering innovation and attention to due diligence to ensure safety,
soundness, stability, and consumer protection. At the same time,
Federal and State regulators of banks and credit unions must not
reflexively and unnecessarily stifle innovation, especially if moti-
vated by politicized interests. Unfortunately, that has been what is
occurring far too often recently.
For example, in June 2023, the Office of the Comptroller of the
Currency, the Federal Deposit Insurance Corporation, and the Fed-
eral Reserve issued final joint guidance establishing principles for
all banks under Federal supervision to consider when entering into
third-party relationships. One Federal Reserve Governor argued
that the guidance is yet another part of a concerning pattern by
regulators of deviating from a risk-based and tailored approach to
supervision and regulation of banks.
Furthermore, an Federal Deposit Insurance Corporation (FDIC)
director argued that elements of the guidance will create more am-
biguity for banks rather than more clarity, which guidance should
be intended to provide. Opaque guidance and rules create more am-
biguity for banks. Ambiguity equates to higher prices and less op-
tions for consumers. These outcomes are not beneficial for our fi-
nancial system or for American households and businesses.
Following the release of the Joint Agency Guidance in 2023, com-
munity banks expressed concerns that it does not provide bright
line assurances that certain activity would or would not be per-
mitted and was not prescriptive enough to explicitly prohibit cer-
tain activity. The guidance was too vague to provide an executable
roadmap discerning what activities regulators would find accept-
able or not.
Such opacity leads to unnecessary uncertainty, which can impede
adoption of some services and innovation, and could lead to regula-
tion by enforcement. Unprincipled regulatory agencies can and un-
fortunately do in some instances use regulation by enforcement to
execute agendas outside of their mandates, therefore evading the
intent of Congress. Unelected bureaucrats need to provide clear
rules and be responsive to the actions they take that impact the
banking system.
I look forward to hearing about the experiences of today’s wit-
nesses, along with your views and suggestions for improving the fi-
nancial landscape throughout the Commonwealth of Kentucky and
the United States.
These field hearings, I will say in conclusion, these field hearings
are not common, but I think are extremely useful, where Congress
actually comes to you, the American people, in the heartland of our
country to get a real world view of what is possible in the area of
financial innovation. I think that is very refreshing, instead of just
relying on experts inside the Beltway.
With that we welcome today the testimony of: Kirk Chartier. Mr.
Chartier is the chief strategy officer of Enova; Mike de Vere, Mr.
de Vere is the chief executive officer of Zest AI; Karen Harbin, Ms.
Harbin is president and chief executive officer of Commonwealth
Credit Union right here in Kentucky; Amy Roberti, Ms. Roberti is
global head of public policy for Stripe and Steve Trager and; Steve
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Trager is the executive chair of Republic Bank and Trust Company
also located here in the Commonwealth.
We thank each of you for taking time to be here. Each of you will
be recognized for 5 minutes to give an oral presentation of your tes-
timony. Without objection, each of your written statements will be
made part of the record.
We will go in order down the line. We will start with Mr.
Chartier. You are now recognized for 5 minutes to give your oral
remarks.
STATEMENT OF KIRK CHARTIER, CHIEF STRATEGY OFFICER,
ENOVA
Mr. CHARTIER. Thank you very much. Good afternoon, Chairman
Barr, and members of the Subcommittee on Financial Institutions
and Monetary Policy. My name is Kirk Chartier. I serve as the
chief strategy officer at Enova International, headquartered in Chi-
cago, Illinois. I have worked in financial services and technology for
over 30 years, including Charles Schwab, Dell Technologies, and
Safeco Insurance.
Enova is a leading financial services company utilizing machine
learning and world-class analytics to offer loan and line of credit
products for consumers and small businesses in the U.S., as well
as offering services and technologies to banks to help them serve
those same customers. I am grateful for the opportunity to discuss
the role Enova plays, and its more than 1,650 employees in in-
creasing financial inclusion in America.
Since our founding 20 years ago, Enova has been committed to
helping hardworking people gain access to fast, trustworthy credit
to meet their financial responsibilities. To date, we have served
over 10 million customers, originated or serviced $55 billion in
loans, and have been recognized as a best place to work in IT for
over a dozen years.
Enova is a $4.6 billion balance sheet company operating some of
the best known brands in consumer and small business lending in-
cluding NetCredit and OnDeck. My company is both a direct lender
and a service provider to community banks who seek to expand the
population they can offer loans to.
Smaller banks leverage the investments companies like Enova
makes in their marketing, data and analytics, servicing, compli-
ance, and capital markets capabilities so that they can compete
with those large money center banks.
The reality today for Americans is stark. Many are struggling
with financial instability. A recent Federal Reserve report high-
lighted that nearly 40 percent of Americans could not meet an
emergency expense of $400 from their savings. For people with
credit scores below 680, it is even worse. Fifty-two percent of them
report being turned down for loans in 2023. They do not have the
savings and they cannot get the loans.
These challenges are not unique to consumers. Another Federal
Reserve study showed that 52 percent of medium to high-risk small
businesses were also turned down by banks for loans last year.
Enova serves this critical need by offering products designed to
provide pathways to better financial health for consumers and
small businesses that often do not qualify for traditional bank
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products. By serving such underserved groups, we believe we are
contributing significantly to financial inclusion, providing many
with the means to navigate unexpected financial challenges or to
grow their businesses.
Additionally, using an online model means most people can get
convenient access to credit through their electronic devices when
and where they choose. Enova can do this because it has developed
proprietary technologies that harness the power of data analytics
and supervised machine learning. These technologies not only en-
sure efficient and fair credit assessment, but they also safeguard
consumer data through rigorous security measures.
However, the landscape of digital finance is evolving rapidly and
our ability to continue innovating is challenged by a complex patch-
work of State regulations. These laws have not kept pace with
technological advancements in data and analytics, the essential
tools that enable us to customize our products.
Activists are driving changes in State laws regarding lending
practices and banking that can pose real challenges. There are
novel theories out there of true lender tests specifically targeted to
banks working with third-party service providers, and some are ad-
vocating for states to opt out of national banking laws like the De-
pository Institutions Deregulation Monetary Control Act of 1980,
called DIDMCA by most. That opt out would undermine our dual
banking system. Ultimately, this all leads to less competition and
fewer options for those seeking credit.
We believe that Congress can play a significant role in bringing
more clarity and certainty to this market, which in turn would re-
sult in more innovations and a greater number of banks being able
to serve more customers. While prudential regulators have a valid,
well-made rule in place, there is a need for a uniform true lender
rule to go with it, one like the Office of the Comptroller of the Cur-
rency’s (OCC’s) 2020 rule that was straightforward and clear for
the bank, regulator, and borrower. We would also suggest clari-
fying DIDMCA opt out authority and strengthening Congress’s
oversight authority on Federal regulators.
Recent Supreme Court rulings have stated that the executive
branch administrative agencies must have clear directives from
Congress to function properly. These actions would increase the
number of banks lending to people and businesses that need it
most by reducing uncertainty about the risks and liabilities of
those programs.
Thank you for the opportunity to share our perspective today. I
look forward to addressing any questions you have.
[The prepared statement of Mr. Chartier follows:]
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Chairman BARR. Thank you.
Now, Steve Trager, you are recognized for 5 minutes.
STATEMENT OF STEVE TRAGER, EXECUTIVE CHAIR,
REPUBLIC BANK AND TRUST COMPANY
Mr. TRAGER. Good morning. As mentioned, I am Steve Trager,
executive chair of Republic Bank. Good morning and welcome to
Congressman Barr and our distinguished congressional panel, as
well as all the other folks of interest out there.
I wanted to spend a little time and tell you about Republic Bank
and what we are about and then some of the products that we offer
and some of the divisions that we have in order to better serve our
communities in a broad community.
Republic Bank, as mentioned, is a Kentucky-based financial in-
stitution. We are one of the 5 percent largest banks in the country,
at about $6-and-a-half billion in assets, which are spread and
served among our 47 locations in five states, Kentucky, Indiana,
Ohio, Florida, and Tennessee. This branch network is a very tradi-
tional branch network and we offer traditional bank products for
the communities we serve, mortgage loans, commercial loans, lines
of credit, various deposit products again throughout the commu-
nities we serve. We serve about 120,000 customers throughout
those communities.
In addition to that, kind of our icing on the cake in our desire
to be more than just a traditional community bank are nontradi-
tional bank products that we offer through a division that we label
as Republic Processing Group. Republic Processing Group, I will
talk a bit about that in a minute, but basically that is composed
of tax refund solutions, Republic Processing Systems, and also Re-
public Credit Solutions.
Before I get into that, let me proudly talk a little bit more about
what we do at Republic Bank. I am proud to say that we have been
recognized as one of the top performing banks in the country and
like most banks in our industry, we are extraordinarily trans-
parent, we are most accountable to regulators, our customers,
shareholders, and the communities we serve. I know of no other in-
dustry that is more accountable and transparent in that regard.
I am also proud to say that we have received high marks for cus-
tomer service, philanthropy, and community engagement, including
most recently our recognition in 2024 as a best places to work in
Kentucky, best partners in philanthropy honoree, and also our re-
cent outstanding Community Reinvestment Act rating.
In addition, as far as philanthropy is concerned, we are proud to
have our name and be the primary funder of the Republic Bank
Foundation Young Men’s Christian Association (YMCA), which is a
new YMCA in an underserved part of our community in Louisville.
Also we were the lead bank for the Louisville Urban League Sports
and Learning Center. Then we have a $6 million commitment in
the form of our community loan fund, which we make funds avail-
able to businesses in underserved parts of the community. In addi-
tion, we have an investment of more than 73 million in low income
housing projects in the communities we serve over the last 2 years.
Now, I mentioned Republic Processing Group, which is another
component of Republic Bank that is a bit nontraditional and en-
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ables us to serve several million consumers throughout the country
with the aid of our partnerships such as Enova and other financial
technology (fintech) partnerships. Predominantly, again, I men-
tioned TRS, which is tax. We are in the tax business. We process
over two and a half million tax refunds electronically for consumers
around the country and Republic Payment Solutions, we have
about a million prepaid cards outstanding, where we serve folks
throughout our—throughout the country.
I guess my discussion focus today is Republic Credit Solutions
that enables us to bring small dollar credit products to an under-
served part of our country through partnerships with two fintechs,
one of which is Enova here today.
These partnerships we take very seriously. You really want
banks to be engaged in these partnerships because I would like to
think we bring an accountability, a transparency, a risk component
because we are at risk for these partnerships. The fact of the mat-
ter is, through our legacy systems, we would be unable to serve
this large community without the help of folks like Enova.
Again, you want banks in this—engaged in this and you want to
make sure that there is not such an excessive regulatory deter-
rence to engagement to make sure that we are held accountable
but appropriately accountable for protecting consumers, holding
our partners accountable, et cetera, et cetera. I think we also serve
as a form of oversight and accountability ourselves because that is
a big component of the life cycle that we have with these folks.
I can tell you there are some very responsible fintechs out there.
I am proud to say that the two we work with, Enova being one,
fall into that category but not every fintech is like that and of every
ten that approach us, we turn down nine of them. So we have that
level of accountability. If I had to categorize my ask, it would be
let us not totally discourage banks from doing these things and
partnering, because again we bring a good accountability to it.
Thank you.
[The prepared statement of Mr. Trager follows:]
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Chairman BARR. Great. Thank you very much, and I am being
light with the gavel. We have some great testimony, so I am letting
folks go a little bit over.
Mike de Vere with Zest AI. I met Mike, a California fintech who
educated me right up front he works with Kentucky credit unions.
So, Mike, you are recognized for 5 minutes.
STATEMENT OF MIKE DE VERE, CHIEF EXECUTIVE OFFICER,
ZEST AI
Mr. DE VERE. Thank you, Congressman Barr. Thank you for in-
viting Zest AI to take part in this field hearing, to share how we
have seen AI, artificial intelligence, and specifically our technology,
make a positive impact on credit union clients, credit union clients
like Commonwealth.
A little fun fact for everybody here. We actually have one of the
leading innovators in the adoption of AI in underwriting sitting
right next to me, and from Kentucky. So—right? So when we now
look at, from a Zest AI perspective, some of our largest customers
like Citibank, all the way to Molokai Credit Union, we are proc-
essing over a trillion dollars in loans. That is one in five credit
union members across the U.S. That is one in five credit union
members here in the great State of Kentucky. So I cannot thank
you enough for this opportunity to present with you, Karen, and
thank you for your leadership in this space.
What I am here to share with members today is how Zest AI has
done the work, hired the right people, and built the technology that
is capable of building a robust, inclusive, and compliant banking in-
frastructure for lenders like Commonwealth Credit Union. By
building this better, fairer system, we remove a barrier that has
existed for millions of creditworthy people who live in the U.S. We
are talking about over 40 million Americans who are either
unscorable or not scorable and do not have access to opportunity,
which is credit.
At Zest AI, we are thinking constantly about the inequity and
status quo of credit score system, the status quo system. That is
a code, right? The industry score that we all wonder about the
explainability associated with that, that has been in place for over
40 years, but lacks transparency and is held to a different standard
than other fintechs like ourselves.
You know, the level of transparency that we have to live up to
goes to everything from model explainability to generating adverse
action codes and things like that. This is a goliath and labyrinth
of regulations we have to run through. Yet there are other monopo-
lies out there that do not have to follow the same rigor.
For model transparency, our models are accompanied with re-
ports, analysis to track and explain outcomes for consumers. These
insights into the data variables contributions are key to trans-
parency, explainability, and compliance. Lenders that use our mod-
els can actually see what data inputs went to the score. This is not
the Terminator, it is not self-learning. This is supervised machine
learning that we are using, and everything is explainable.
AI models are all required to provide information sufficient to
disclose the consumer details about the outcomes of the decisions
that were made with the AI, also known as the adverse action no-
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tices, required under Equal Credit Opportunity Act (ECOA) and
Fair Credit Reporting Act (FCRA). These notices inform the con-
sumers, which is important, and the members of the reasons they
could not get the credit they sought. However, the quality of mod-
els can vary and a fully transparent AI model like the one we cus-
tom built for Commonwealth Credit Union is necessary to generate
accurate adverse action notices. AI can be a powerful force for good
when done right. It is not the boogieman.
With more data insights and better math in the form of artificial
intelligence and machine learning, Zest AI clients can safely ex-
pand credit access through more accurate risk predictions, state-of-
the-art model governance. Many of our customers, when we look
across the results that they are seeing, we will see increases in ap-
provals of 25 percent, decreases in charge-offs. Who does not like
that? It expands access to their full customer base.
Zest AI focuses on being the catalyst for economic equity by
leveraging AI’s potential for good. Everyone has worth. Lending de-
cisions should reflect that. I will say that again. Everyone has
worth. Lending decisions should reflect that. This idea of credit
worthy? These are Americans. Every American should have equal
access, fair access and a fair shot at credit.
I look forward to working with you all and sharing any insights
I can on the work we do at Zest AI to improve equitable access to
mainstream credit.
[The prepared statement of Mr. de Vere follows:]
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Chairman BARR. Thank you, Mike, and speaking of that innova-
tive Kentucky credit union, Karen Harbin is now recognized.
STATEMENT OF KAREN HARBIN, PRESIDENT AND CHIEF
EXECUTIVE OFFICER, COMMONWEALTH CREDIT UNION
Ms. HARBIN. Thank you. Good morning. I am Karen Harbin,
president and CEO of Commonwealth Credit Union, headquartered
in Frankfort, Kentucky. We are a state-chartered credit union with
over two billion in assets and 18 branches in the central Kentucky
and Louisville metro areas. Thank you for the opportunity to be
here today to talk about how fintech partnerships enhance our abil-
ity to serve our credit union members.
In 2019, Commonwealth set out to make better lending decisions
for our members. The lending team wanted to confidently lend
down the credit spectrum through more accurate, unbiased
decisioning that would not increase risk. They also knew we needed
to innovate the lending process to meet our members’ increased de-
mand for a fast, frictionless lending experience.
We set out to find a fintech partner in the marketplace that
could help us meet these challenges, and we found one in Zest AI
and their underwriting tool. Zest AI was ready to fill in the gaps
with increased automation and accuracy. This allowed our under-
writing teams to focus on members who need more personal sup-
port with their application. Their technology has allowed us to say
yes to more members while not negatively impacting charge-off and
delinquency ratios.
With nearly three-fourths of all consumer loans decisioned auto-
matically under this partnership, Commonwealth’s ability to com-
pete with other lenders has skyrocketed. Since 2021, Zest AI has
helped Commonwealth approve more than 370 million in consumer
loans. The performance of these loans is also stronger.
With this technology, we can approve member loans outside of
regular business hours, enhancing convenience and accessibility.
For example, in 2023, we recorded over 3,000 more loans than in
2019. Zest AI has helped us make previously invisible credit files
scorable, again enabling us to say yes to a broader and more di-
verse range of applicants.
Using automated underwriting as part of our partnership with
Zest AI, Commonwealth has increased our approval rates for mi-
nority borrowers, doubling it for auto loans, increasing by 40 per-
cent for credit cards, and raising it by 9 percent for personal loans.
Loan approvals for female borrowers have also seen similar in-
creases. This partnership has been very successful for us and we
believe this is a great example of how working with the right
fintech partner can benefit financial institutions like Common-
wealth.
We have heard from numerous members who thank us for ap-
proving their loans. Many are now turning to us when other lend-
ers are turning them down. Zest AI has made it easier for us to
now serve them.
Unfortunately, there is still uncertainty in the regulatory envi-
ronment with fintech and AI usage. Regulators frequently recog-
nize the advantages of technological collaborations, yet they have
also voiced apprehension that certain technologies like AI may be
33

functioning in ways that neither they nor consumers fully under-
stand.
We are concerned that regulators taking a stringent stance on AI
usage in the financial sector could disproportionately harm credit
unions and smaller institutions while benefiting the largest incum-
bents. For example, statements from the Consumer Financial Pro-
tection Bureau (CFPB) suggesting that AI algorithms function as
opaque black boxes introduce uncertainty about the level of regu-
latory scrutiny, especially in the absence of evidence of harm to
consumers.
When regulatory entities approach technology in this manner, it
reinforces the concern that smaller entities could face obstacles to
success as only the largest institutions may possess the resources
necessary to meet such rigorous standards. We believe regulatory
assessments of new technologies must embrace balanced and flexi-
ble approaches to risk management that can accommodate innova-
tion while protecting consumers. While there may be need for clear
rules of the road, those rules should not be so stringent as to stifle
innovation or disadvantage smaller institution.
In conclusion, the impact of credit unions including Common-
wealth Credit Union lies in our genuine commitment to serving
communities. Every step we take is in line with our primary mis-
sion to better the lives of those we serve. Our partnership with
fintechs like Zest AI allow us to better serve our members. It is im-
portant that regulators not create expansive requirements or new
hurdles that threaten the ability of credit unions to take advantage
of successful partnerships like we have with Zest AI.
Thank you for the opportunity to be here today, and I welcome
any question.
[The prepared statement of Ms. Harbin follows:]
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36
37
38
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Chairman BARR. Thank you, Karen.
Last but not least, we recognize Amy Roberti, head of global pol-
icy with Stripe. You are recognized for 5 minutes.
STATEMENT OF AMY ROBERTI, GLOBAL HEAD OF PUBLIC
POLICY, STRIPE
Ms. ROBERTI. Thank you, Mr. Chairman, and distinguished mem-
bers of the subcommittee. Thanks for welcoming Stripe to Ken-
tucky. Thank you as well to our wonderful host, the Lexington
Brewing and Distilling Company, whose business Stripe has the
privilege of serving.
Stripe is a technology company that builds economic infrastruc-
ture for the internet. Businesses of every size from the smallest of
startups to big public companies use our technology and tools to ac-
cept payments online and grow their businesses.
Stripe was founded in the U.S. in 2011 by John and Patrick
Collison, two brothers from Limerick, Ireland. Before Stripe, they
built another startup and found that the biggest challenge was ac-
cepting payments. That is when the idea of Stripe was born.
Patrick and John created just seven lines of code that they could
give to businesses to start accepting payments online in a matter
of minutes. Since then, Stripe has grown along with some of the
world’s biggest and most innovative online companies but we also
power the digital transformation of companies that are not tradi-
tionally online, like Ford Motor Company and Target. They use our
software for a range of corporate functions, from analyzing rev-
enue, finding sales opportunities, and preventing fraud.
These tools are not just available to industry giants. We serve
millions of small businesses across the U.S.; nearly half a million
of the businesses we serve are actually rural businesses. I am
proud to say that more than 34,000 of them are here, based in Ken-
tucky.
Today, we are seeing a fundamental shift in how businesses ac-
cess financial services, with software platforms integrating pay-
ments, capital, and other services directly into their business oper-
ations. A great local example of this is Pay HOA, a Lexington-
based startup. They built a software platform that helps home-
owners associations manage their communities more efficiently,
from providing payment services to communications. They serve
over 20,000 associations and nearly 650,000 homeowners across the
United States, showcasing how local businesses can leverage tech-
nology to solve industry-specific challenges.
To make all of this work, Stripe partners with a number of finan-
cial institutions. These partnerships enable us to jointly extend the
reach of financial services to underserved businesses. Last year,
Stripe helped businesses around the globe process more than one
trillion dollars in payments volume. That represents 1 percent of
global Gross domestic product (GDP).
The economic growth is powered by acquiring bank and network
partnerships, but these are not new. They have been around for
decades. The difference now is that they are scaling and more fine-
ly tuned to meet the needs of each individual business.
This growth does not just happen in big tech hubs. As the online
economy grows, we see that it is compounding locally, too. Since
40

2010, states including Kentucky, Tennessee, Indiana, Texas, and
Nebraska, just to name a few, have seen per capita payment vol-
ume grow more than four times during this period. Payment vol-
ume increased approximately seven times in Knoxville, five times
in Omaha, four times in Louisville, Houston, and Indianapolis, and
three times in Nashville and Dallas.
Growth is not limited to urban areas. Over that same period,
rural areas across the U.S. increased processing volume on Stripe
fivefold and rural businesses here in Kentucky saw an impressive
eight times increase in volume.
How do we keep growing the GDP of the internet? We have a few
policy recommendations that we added to our testimony. In short,
we think keep promoting bank and tech partnerships, provide a
Federal framework for payments companies, digitalize government
services that hurt small businesses, and keep fostering innovation.
In conclusion, Stripe’s humble mission is to grow the GDP of the
internet. We are optimistic that technology-driven improvements
can help achieve this goal. Through thoughtful policies that scale
access and oversight on a positive basis, we can create a more in-
clusive and efficient financial system for all Americans and drive
economic growth.
Thank you for the opportunity to participate in this hearing and
thanks for the warm Kentucky welcome. I look forward to your
questions.
[The prepared statement of Ms. Roberti follows:]
41
42
43
44
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Chairman BARR. Thank you very much. I appreciate everyone for
their testimony. I do want to recognize Jim Cash, the president and
CEO of the Kentucky Credit Union League, who is here and also
Ballard Cassady, president and CEO of the Kentucky Bankers As-
sociation. I appreciate both of you all for being here today.
We will now turn to member questions and the chair now recog-
nizes himself for 5 minutes.
Mr. Trager, tell us a little bit more about how banks can leverage
these third-party relationships to improve access to credit, expand
financial services offered to consumers and small businesses, and
talk about how important it is for especially community banks to
leverage these third-party relationships in a very competitive envi-
ronment relative to regional and large Global Systemically Impor-
tant Banks (G-SIBs)?
Mr. TRAGER. As a community bank, you know, it is our goal to
serve more people in more places that the big banks have great dif-
ficulty in serving. As I mentioned, we have 47 branches. Those
branches serve a very real purpose in our community for a very
unique clientele but they, through those branches, it would be im-
possible to serve the few million consumers that we serve.
Our infrastructure and the efficiency is just not capable of a per-
son—or it is very difficult to have a person walk into a bank, walk
into a branch, and get a $1,000 loan within 24 hours. We just have
legacy systems, infrastructure. It is very difficult to do that. Like
I said, we serve 100,000 customers through those—120,000 cus-
tomers through those 47 locations.
With the help of Enova and a fintech, we can serve a few million
customers with a need and be able to provide access to that need
that customer, for one reason or another, is hesitant to go to a tra-
ditional branch bank.
Chairman BARR. So it is fair to say because the enormous cost
of investing in technology is harder for smaller community finan-
cial institutions, these fintech partnerships are critical to level the
playing field between the community smaller institutions and the
big banks?
Mr. TRAGER. Without question and we are not a small bank. It
applies to us because we know the cost involved but to our breth-
ren, smaller banks, there are, I do not know, 2,400 banks in the
country, 1,800 of them are under a billion dollars in assets. We are
six and a half billion. For those folks in particular that may not
have the capital and resources, it would be vital for them to be able
to partner with folks, with fintechs, the right fintechs, to be able
to offer more products and services to more people in more places.
Chairman BARR. Thank you. Ms. Harbin, could you give us an
example, a really good example of the financial inclusion benefits
of partnering with a Zest AI and serving a customer who otherwise
would not have access to credit?
Ms. HARBIN. Thank you. With Zest AI, we have been able to
make more accurate, unbiased decisions and go deeper with our
members and provide financial services to them where they other-
wise cannot get services. Zest AI looks at about 190 to 200 data
points and provides us a decision in 2.4 seconds. It takes us, if a
manual underwriting, it would take us five to 7 minutes and we
are looking at 15 to 20 data points.
47

Zest AI has many stories to tell you. One in particular, a couple
came in to one of our branches and he had a temporary hardship,
where he had reduced hours and he did not know how he was
going to pay his bills. We were able to approve him on the spot and
provide $6,000 that he could use until he got back on his feet. That
would not have been possible without an immediate decision from
Zest AI.
All consumers are looking for immediate access. You go to the
drive-thru somewhere, you want to be serviced immediately. Us
being able to have a decision in 2.4 seconds is fantastic and our
members are elated with that service.
Chairman BARR. Mr. de Vere, can you speak to some of the re-
cent pronouncements or expressions of concern from the Consumer
Protection Bureau that could threaten the innovation of artificial
intelligence in promoting financial inclusion?
Mr. DE VERE. Yes, I think from our perspective, we lean in with
the regulators. So if we are talking about the CFPB, we are a su-
pervised entity and the regulations that are on the books are suffi-
cient to protect members from our perspective. We also work with
National Credit Union Administration (NCUA) and have a tremen-
dous partnership with them. So, from our perspective, I think regu-
lations are necessary to protect consumers.
I think, Congressman Barr, you brought up a very good point at
the beginning. It is really about competition and if we overregulate,
we will end up stifling competition, and our financial institutions
will be for the worse.
Chairman BARR. My time has expired, and we might have time
for some more questions. We will get to Ms. Roberti and Mr.
Chartier in a minute.
With that, we now recognize Mr. Rose for 5 minutes.
Mr. ROSE. Thank you, Chairman Barr, for holding the hearing,
and for the opportunity to be a part of this. I had the honor, as
you know, just a couple months ago to host you and Mr. Flood in
my district, Tennessee’s Sixth District, for a similar type of hear-
ing. I share your view that it is important for us to take these
hearings back out to our districts, and not only to get testimony
from folks who we might not see in Washington, but also so that
folks here in your district and in mine can see what our work looks
like.
While it may seem at times that these things are a little cum-
bersome and staged or whatever, the insights that we gain from
the witnesses are invaluable for doing our work, and very often are
both the inspiration and the encouragement for the work that we
do to change the law and make it possible for the American people
to engage in the freedom of transactions that they wish to. So I will
dive straight into my questions.
Ms. Roberti, in my district, the Sixth District, again, of Ten-
nessee, there are over 400 active Stripe merchants. Hopefully, that
is an accurate number. Stripe has facilitated over five million in
payments just in this past June. So those figures indicate that the
work that Stripe is doing is appreciated by both merchants and
consumers alike.
One specific service that Stripe offers is Stripe Connect. I know
that companies like Ford have adopted this technology with great
48

success. Could you explain how Stripe Connect would work with
dealerships like Ford of Cookeville, my hometown, to connect con-
sumers, merchants, and dealers?
Ms. ROBERTI. Thank you, Congressman. Yes, we are proud to
partner with Ford Motor Company. I think it is a great example
of a product that we offer, Stripe Connect, where we actually on-
board the dealerships, and so they have access to the full suite of
payments, products, antifraud, everything they need to run their
business. Then, those accounts are connected accounts to Ford
Motor Company generally, so both parties get the benefit of the
business insights that we can see from the transactions that are
happening in their dealerships. It is sort of taking maybe a small
dealership and giving them the tools that a Fortune 50 company
would have and we have seen that leads to increase in sales, in-
crease in customer understanding, happier users, more revenue.
I think it is a great example of a product that just enables inno-
vations for smaller dealerships that maybe would not have access
to that.
Mr. ROSE. Thank you and at the back end of Stripe Connect,
what role do bank partnerships play in launching an innovative
product like Stripe Connect?
Ms. ROBERTI. I think this is where, when we talk about bank-
fintech partnerships, sometimes it sounds very exotic, and we are
talking about things that are not just the day to day. So for us, a
lot of our bank-fintech partnerships are the more mundane, just
banking identification number (BIN) sponsors. A bank is
partnering with us to facilitate those payments that are happening
every day. So that is how we would partner with a bank for Stripe
Connect and to help Ford Motor Company.
Mr. ROSE. Thank you. Unfortunately, in today’s regulatory cli-
mate, we have regulators who seem to be afraid many times of
novel or innovative technology being implemented in the financial
sector. Ms. Harbin, as regulators consider acting in the fintech
space, what would you say is important for them to consider from
a community financial institution perspective?
Ms. HARBIN.We support a balanced regulatory approach but the
regulations cannot be so rigid that it forces smaller institutions
such as Commonwealth and other community banks out of busi-
ness with overregulation. So I guess that is——
Mr. ROSE. I share that concern. The quandary I think is to bal-
ance the need for innovation against the safety and security of our
financial industry and the consumers that rely on it.
In the last moments here of this round, Ms. Roberti, I know that
Stripe is proud to offer a hundred different forms of payment
across their online and in-person payment processors. One aspect
of payment processing development that concerns me is the erosion
of the acceptance of cash as a payment method. How does Stripe
facilitate the acceptance of cash during in-person transactions?
Ms. ROBERTI. Thank you, Congressman. I think this is important
because we are in the business of giving our users what they want
and it is clear that users, merchants want to offer cash as a pay-
ment method in many cases. So we have a product that is a point-
of-sale device called Terminal that you have probably seen when
you are paying for something in a store and we absolutely can op-
49

erate that with a cash drawer as a cash option, and we think that
is really important to offer consumers that choice.
Mr. ROSE. Thank you. I see my time has expired. Thanks for
your indulgence, Chairman, and I yield back.
Chairman BARR. Thank you. The gentleman from Wisconsin, Mr.
Fitzgerald, is now recognized.
Mr. FITZGERALD. Well, thank you, Chairman, very much and
thanks for hosting us. What a wonderful opportunity to have a
larger discussion on many of the topics that we have been focused
on in DC for some time. As most Members of Congress, of course
we like to talk about our own districts. So let me talk about the
Fifth District in Wisconsin quickly, where we do have a bank, the
Horicon Bank, that has had employees that have been finalists for
the American Bankers Innovators of the Year in 2024. The reason
I bring that up is because what Horicon Bank has been doing is
utilizing technology to benefit customer experience with features
like opening an account online, as we are all familiar with, inter-
active teller machines, video and chat services, as well as helping
back office functions, fraud prevention and compliance.
Horicon is focused on software as a service solution, rather than
banking as a service one. So my questions are kind of related to
that.
Mr. Trager and Ms. Harbin, have you seen examiners differen-
tiate between institutions that use software as a service and bank-
ing as a service? Then, what is the biggest obstacle, do you think,
in implementing banking as a service solution? So there is kind of
the front end for technology and the back end. I am wondering if
you had any comments on that.
Mr. Trager, you can go first, I guess.
Mr. TRAGER. Thank you for the question. It is a good question.
I am not sure of the exact label of it. You know, the fact of the mat-
ter is that the regulatory environment is very necessary. I have a
high degree of respect and regard for our regulators.
Any time you do anything new or innovative, it is subject to a
lot of scrutiny. That waves a flag of risk. Now, we have so much
at stake that we understand that risk, and we are very forthcoming
with our regulators, anything new we do, we throw a lot of re-
sources at it. I mean, we have 35 folks in our compliance depart-
ment.
So we tend to be able to navigate that with some challenge. I
think for others, it certainly is even more challenging, and for us
it is always of concern whenever we try to do anything new and
innovative.
I would just say we ask for some appropriate regulation. You
cannot regulate around everything. Sometimes, it is just up to the
execution of the regulators. They have the tools in place, without
question, to address the challenges of innovation. I think there is
not a congressional response to every incident that happens.
So, we make it work. I think it is very difficult for a lot of banks
to make it work. It is certainly difficult for us to make it work.
Mr. FITZGERALD. Ms. Harbin, you have a comment on that?
Ms. HARBIN. Thank you. So we have had—we have been with
Zest AI since 2021 and had numerous exams and audits, reviews,
and we are met with applause. They applaud our efforts to go deep-
50

er and serve more members. We are serving more people in pro-
tected classes.
Zest AI provides us with numerous reports that we share with
our board on a quarterly basis. We do an Return on Investment
(ROI) on the service, the cost/benefit analysis. We went through
great due diligence with Zest AI when we chose them to be our
partner, have quarterly business reviews with Zest AI where we go
over what we are seeing in our loan portfolio, both the loans that
are decisioned by Zest and the loans that we have done manually.
We look for ways to increase our usage with Zest. So it might be
they say if you increased or adjusted your Debt-to-Income ratio
(DTI) or your number of trade lines, you could increase your ap-
provals by 10 basis points, but your risk stays stable, and your
yield goes up.
Those are the type of conversations that we have with Zest, a
great partner and because of that, we have not received anything
from our examiners that raise an issue with safety and soundness
of our credit union.
Mr. FITZGERALD. Very good. My time has expired. I will yield
back.
Chairman BARR. The gentleman yields back. The gentleman from
Texas, Mr. Sessions, is now recognized.
Mr. SESSIONS. Mr. Chairman, thank you very much. What a
great opportunity for us to come and take what we regularly do in
Washington, DC, to come back to these districts. I want to say to
people who are back here, not just here today but also listening,
that I believe that there is a lot of conversation that happens ex-
actly in Washington, DC, that is happening here and that is how
we connect more consumers with financial institutions to the ben-
efit of consumers, to where they can make decisions about them-
selves, their future, and for their families.
I would like to, if I can, after thanking you for bringing us here,
to recognize that the conversations that you, John and Scott have
had where really the word safety and soundness that we under-
stand is important but the word security has sneaked into our lexi-
con.
I would like to ask each of you—perhaps Stripe and Zest would
offer their analysis first—but as we have gotten into a world where
we are interconnected more and more, so have people through
malware and other criminal activities sneaked themselves into
what I would say the system, not just into an individual company.
In Texas, which is where I am from, we have financial institutions
that report time after time after time their customers being at risk
because of malware and criminal activity.
If I could just have you perhaps go down the line and talk with
us about the activities that you believe either—whether you are re-
ceiving good information back from regulatory organizations, law
enforcement, or others that will help you to stay leading edge.
Thank you.
Mr. CHARTIER. Sure, thanks for asking that. I think the safety
and security of the data and of the customers is really important
to us, and we have a team that works on that specifically. It is a
pretty large team and uses a lot of analytics to understand what
51

attacks are coming at us, how we help prevent those, implement
additional security to do that.
I think that from the regulatory or the oversight standpoint, or
even the assistance standpoint from law enforcement, we find they
are very helpful but somewhat overwhelmed right now with all of
the things that are going on. So when you reach out and you say,
hey, this is a problem our customers are having, they say, thank
you, and they put it in the data base and get it shared rapidly but
they cannot always do a lot to help the individual that might have
been impacted.
Mr. SESSIONS. Do you share that information, or do they share
back with you, and do you think it goes across the organizations
that might be banks, bankers?
Mr. CHARTIER. Absolutely. We subscribe and others subscribe to
the service that when you put that into the service, it gets shared
across. We also have panels and other discussions that occur.
Mr. SESSIONS. Thank you. Do we want to hear from Stripe or
Zest?
Mr. DE VERE. Thank you for the question. So obviously, security
is critical in the line of business that we are in. You are dealing
with, obviously, banking information, individuals’ personal infor-
mation. We take that very seriously as an organization and have
all the necessary protocols in place.
I think the thing that I would offer or watch out for is that there
are some other players that are coming into the U.S. from overseas
and they are trying to service community banks and credit unions
here in the U.S. Personal information is being sent overseas, which
is a really great risk for our consumers.
So what I would encourage from a Zest perspective is we use a
cloud-based security system and have never had an issue but I
would watch out, and I would offer to the congresspeople here that
we do have players coming in from the outside that I think are put-
ting an American consumer at risk.
Ms. ROBERTI. I think we would not have a specific experience to
add but just we feel an obligation to be guardians of the financial
ecosystem as well. As technology improves for all of us, the bad
guys are using technology as well and that is why I think we are
heartened by regulators also embracing technology and taking
strides there because I think they see it as a tool that we all need
to combat cybercrime and other fraudsters that are happening on-
line.
Mr. SESSIONS. Do you believe that when you—would you spot
this perhaps for a customer? Or do they spot it, and do they notify
you? Or are they pretty silent about what they have?
Ms. ROBERTI. No, I think it goes both ways. When we spot it, we
have an obligation to raise it with law enforcement and we do that
often.
Mr. SESSIONS. Thank you very much.
Thank you, Mr. Chairman. I yield back my time.
Chairman BARR. The gentleman yields back. Last but not least,
the gentleman from Nebraska, Mr. Flood, is recognized.
Mr. FLOOD. Thank you, Mr. Chairman.
Good morning. It is good to be here in Lexington, Kentucky, the
horse capital of the world. When I look around Lexington and your
52

district, Mr. Barr, I see a district that looks a lot like mine. I rep-
resent Lincoln, Nebraska, which is home to the University of Ne-
braska. Similarly, you have a flagship university right here and
there are plenty of rural areas that are also in this district, full of
hardworking, quality, sound and fit banks in all sizes throughout
the State of Kentucky.
Which brings us to the topic of this hearing. Third-party partner-
ships with banks and fintechs. I am really interested in the third-
party fintech partnerships because community banks, in order to
be successful, have to compete with the G-SIBs, with the banks like
Wells Fargo and Bank of America. It is important, when you look
at the Paycheck Protection Program (PPP), community banks,
banks that have relationships with their customers, hit that pro-
gram out of the park because they knew what their customers
needed, they knew what they could take on, and they watched for
fraud, and they protected the American taxpayers.
Fintech partnerships can take lots of different forms, something
as simple as a mobile banking app or an updated customer inter-
face are the types of features that consumers and particularly
younger consumers that will probably never go through a bank
drive-thru, they will probably not walk into a bank and fill out a
deposit slip and hand it to the teller. They are going to do every-
thing on their phone. For me, it is very important that especially
in rural areas, we have these third-party relationships.
I am going to start with Mr. Trager. In your testimony, you made
an interesting analogy comparing partnerships between banks and
fintechs to the partnership between a restaurant and a delivery
service like Uber Eats. Would you mind expounding on that anal-
ogy for our benefit?
Mr. TRAGER.Thank you for the question. You know, it takes a vil-
lage. I mean, when you are offering products to a lot of consumers
that do not necessarily have standard access we need to partner
with folks that help identify the consumers that are in need for us
so that we can provide the funding that we plentifully have, or we
have in a plentiful way.
Yes, the example is a good example. You know, we are the Uber
Eats. We generate more business for our partners, and then we
help deliver that product. So they enable us to market and to get
out and make our services be known to a very broad audience that
we help deliver the product. That is what we bring to the table.
Mr. FLOOD. Thank you for that.
Ms. Harbin, can you provide some examples of products Republic
Bank offers in partnership with fintechs that expand access to
banking services to people that might otherwise be unbanked or
the under-banked?
Ms. HARBIN. At Commonwealth Credit Union, we provide per-
sonal loans, auto loans, mortgage loans. We are able to go deeper
with Zest AI. We actually have three of their models right now,
auto loan, personal loan, and credit card. We have data that shows
that we are going deeper into those protected classes.
We have been with Zest AI since 2021, and that portfolio of loans
has quite a bit lower delinquency and charge-offs than our entire
portfolio. So we are very proud of that.
53

We know that we have to compete on a larger level and the way
that we can do that is with Zest AI. We do not have the funds for
technology like the large megabanks. I think 17 billion is some-
thing I read that one of the huge megabanks spent on technology.
In contrast, last year, we spent about 9 million.
So we have to partner with fintechs to compete on the same
stage for our members and to give them the products and services
that they are looking for in the timeframe that they want it.
Mr. FLOOD. I need to correct the record. You are with the credit
union. You are the president and CEO of the Commonwealth Cred-
it Union. I was also going to direct that to Mr. Trager, but I al-
ready hit him with one question, so I let him off the hook on that.
One quick, very quick story. I had a 23-year-old guy that had
helped—he works in my congressional office. My car was out of gas
and he on his own accord went and filled it up. I said, well, what
did you pay? He said $59. I wrote him a check. I handed him the
check and he looked at it and he was like, what am I supposed to
do with this?
[Laughter.]
Mr. FLOOD. That is a reminder of where we are and where we
are going.
Thank you. I yield back.
Chairman BARR. The gentleman yields back. Thanks so much for
these questions.
With the indulgence of these witnesses, we are going to engage
in a quick second round, lightening round if you will, where each
of the members will have an opportunity to ask one final question.
We will start here.
Before I go to my final question, I do want to recognize State
Senator Donald Douglas, who has joined us. We appreciate State
legislatures taking a look at the innovation that is happening in fi-
nancial services because obviously, you have a role to play as well.
In that vein, let me ask my question to Mr. Chartier.
You testified earlier today, and we have talked about this before.
You have urged Congress to reverse the mistake that Congress
made with invalidating the True Lender Rule from the OCC. You
have urged Congress to reinstitute the OCC True Lender Rule and
making Federal law applicable to all banking institutions and clar-
ify these opt out authorities.
Why is preemption, Federal preemption, so important in this
space that is interstate commerce, and how would that enable more
innovation and financial inclusion? Also, if you could, describe the
problem to those who are watching.
Mr. CHARTIER. Sure. Thanks for that question. I leave preemp-
tion to the lawyers and the bankers a little bit but I would say
from a service provider, from a product developer, you want to get
the largest market you can reach as thoroughly as you can. I
talked about how there are populations—and certainly Steve talked
about how banks have a problem serving certain populations, be-
cause you cannot evaluate them, because they cannot develop the
technology that is necessary.
When you go to put that investment into building a product, you
want to reach as many markets as you can to increase the effi-
ciency of the delivery of that so we can lower the prices, so we can
54

be more competitive. When you go to do that in the U.S., you run
up against State laws, because each State has instituted laws over
200 years that influence credit products that consumers or small
businesses can get.
When you go State by State, often they will have defined prod-
ucts. I always talk about they define for a consumer or a small
business looking at credit. It is like a 10-story stairwell, and they
want to get to the top but a State will come in and they will say
you can have floors one through three, but you cannot have floors
five and six, and then maybe we will give you eight as well. So peo-
ple get trapped where they are because there are not products that
fit the place they are in their credit or financial health journey. So
the State environment makes that very difficult.
The banks can come in with a steady—with a consistent product
across all the states because of their preemption and they can de-
liver it to all those people and that allows people to move freely
through a pathway of financial products back into regularized and
more standard and traditional banking services. That is the impor-
tance. The OCC recognized the confusion that was out there and
said, when the bank originates a loan, it is the bank’s loan. If they
then choose to manage their balance sheet by selling off some in-
terest of that to make sure they are fitting the regulatory environ-
ment, that does not change anything. That is critical to us because
that allows that uniform presentation of the product across all of
the markets.
Chairman BARR. Thank you. Mr. Rose?
Mr. ROSE. Thank you, Mr. Barr. I want to thank you again for
hosting this hearing.
Ms. Roberti, I want to pick up where I was when I ran out of
time before. I just want to say I would urge Stripe and all payment
processing companies to continue to accept cash. Sixty-seven per-
cent of Americans still use cash for making in-store payments. My
late colleague, Representative Payne, and I introduced the Pay-
ment Choice Act for this exact reason. Cash is king and Americans
should not have their business refused for paying with legal tender.
My question for you, are there any plans to remove cash as a
payment option at Stripe in-person terminals?
Ms. ROBERTI. No plans, Mr. Congressman.
Mr. ROSE. Super. That is great to hear. The civil libertarian in
me says I want to see cash continue to be an acceptable form of
payment and maybe even the next generation will come to appre-
ciate it at some point.
Thank you. I yield back.
Chairman BARR. Mr. Fitzgerald.
Mr. FITZGERALD. Many Fintech companies are pushing Congress
to establish an optional and tailored Federal charter for payment
companies. They are also seeking direct access to the national pay-
ments system. This would obviously bypass some of the bank part-
nerships and allow these companies to avoid the full spectrum of
bank regulation.
Ms. Roberti, you are familiar with it, and you have had some
time to kind of consider what the challenges would be. If some of
these bank regulations are unnecessary under such a charter, how
55

would you still be able to scrutinize the safety and soundness of the
fintech companies?
Ms. ROBERTI. Thanks for the question. Look, I think in other
parts of the world—so we are regulated. We have 80 licenses across
the globe and in other parts of the globe, we have different bespoke
kinds of payments regulation.
In the U.S., it is different. It is more binary. So you can either
be a State-regulated, State-chartered payment entity with all the
limitations that come with that, or you can be a full-fledged bank
and there is not much in between. So I think what we would just
encourage in partnership with State regulators and recognizing the
great work of Conference of State Bank Supervisors (CSBS) and
the modernization that has happened there, but we should just
think about ways to innovate. It works in the rest of the world and
with it comes supervision that is tailored for the level of risk that
it presents.
There is something between, like I said, the risk of a full-fledged
bank offering loans and then payments. I do not think we have all
the answers, but I think we would encourage the committee, as you
have, and others to just take a look at what options are out there.
Mr. FITZGERALD. Mr. de Vere, do you have a quick comment on
that one? Very good, thank you.
Chairman BARR. The gentleman yields. The gentleman from
Texas, Mr. Sessions.
Mr. SESSIONS. Mr. Chairman, thank you very much.
From time to time, almost every time when we come into a hear-
ing, we learn things that we did not know and that is because we
have a staff that works regularly on some of the issues.
I would like to go to Karen Harbin if I can. The question is that
I learned from our notebooks here of our homework, the National
Credit Union Administration, NCUA, does not have authority over
third-party vendors who partner with credit unions.
The question is, in your opinion, is this helpful or harmful and
should this be recognized and give them the authority, or do you
believe you have the knowledge and the resiliency to handle this
yourself?
Ms. HARBIN. Thank you for that question. We believe that we do
not need NCUA to have third-party vendor authority. We look at
our third parties and do due diligence which is adequate. If NCUA
had that authority, it would increase costs to credit unions because
they would have to staff with experts that looked at all these ven-
dor relationships, and it would ultimately cost credit unions a lot
more money. So we do not support it.
Mr. SESSIONS. So this allows you to be more nimble?
Ms. HARBIN. Yes, more flexible.
Mr. SESSIONS. This allows you to make decisions that you would
choose to make.
Ms. HARBIN. Exactly.
Mr. SESSIONS. You do not believe that it would be necessary, so
do not need to approach this issue.
Ms. HARBIN. Do not.
Mr. SESSIONS. I found that very interesting as a question, be-
cause we tend to want to have the viewpoints that we want to give
everybody an opportunity to go to third-party vendors but hold
56

them accountable also. I found this as the most interesting ques-
tion that has been unanswered here.
I would come back to this question that I still have not just about
safety and soundness but security. Did anybody else have feedback
that they would like for us to know? Because I have heard the tes-
timony that has been given that you believe that law enforcement
does listen. You believe that law enforcement is perhaps doing the
best that they can. Do you offer other feedback? Because I still be-
lieve the feedback that I have heard, albeit from a lot of Texas enti-
ties, is that there is still a huge concern about the numbers that
keep adding up about the criminal elements of malware. Does any-
body else have anything to add on that issue? Yes, sir.
Mr. DE VERE. The OCC, Comptroller of the Currency Hsu just re-
cently was quoted about AI and fraud, or fraudsters out there that
are leveraging AI today and the need for better tools.
I think I would just add to your security comment and talk about
the importance that organizations like Commonwealth and other fi-
nancial institutions not only could leverage better technology like
AI for underwriting, but you can also leverage AI to identify fraud-
ulent behavior, that humans cannot find patterns, but the AI actu-
ally can. It will have a material impact if more and more financial
institutions adopt this approach.
In our recent release with one of our customers, we were able to
eliminate 60 percent of the fraud just by focusing on the top 15
percent most risky applications that came through. That is a mate-
rial impact. The average credit union is losing $500,000 a year to
fraud.
When we talk about security, I think it is also important to add
in fraud and the opportunity that these types of tools have.
Mr. SESSIONS. I would like to agree with you. I hear over and
over in these conversations that larger or smaller organizations
still learn a lot about the things that are evolving every day. At
some point, it is hard to get necessarily what I would call a cus-
tomer or end user to stay up with all those things. Perhaps it is
people who you have only given a loan of several million dollars to,
but they also find themselves in an attack.
I am kind of looking for your feedback to tell me where you think
that presentation should also include to where you give information
back perhaps to your customers to where they can give information
that flows all the way to the individual that says, here are the
things that we believe you should include as leading edge security
back into your own company.
Mr. Chairman, thank you very much. This hearing, as I looked
at what we were attempting to codify here into understanding
about fintech relationships is being improved. I think it was worth
my time to be here today. I yield back.
Chairman BARR. Thank you. We do appreciate you and the other
members making time to come to Kentucky.
Finally, Mr. Flood from Nebraska.
Mr. FLOOD. Thank you, Mr. Chairman. Again, thank you for the
invitation to Lexington.
This is for anyone that wants to maybe react to it in a very brief
way. I am interested in what are regulators and examiners talking
to you about when it comes to bank fintechs, partnerships. Are
57

there things maybe they are misunderstanding? Are there things
that you maybe think they are not looking closely enough at? What
are those conversations with the examiners and the regulators like
in your bank or credit union, and where do you think we are going
with all this?
Ms. HARBIN. Thank you. I will answer that first.
As I said before, we do a great deal of due diligence before we
ever partner with a fintech. The examiners look for that. They also
look that we are monitoring the portfolio, and we understand what
is going on with the portfolio, and make changes and adjustments
as needed if we see something getting out of hand, such as delin-
quency or charge-offs but our delinquency and charge-off using Zest
AI is much better than it is in the overall portfolio.
Mr. TRAGER. There is not much I can add to that. That is abso-
lutely right. They are looking for thorough due diligence, oversight,
and monitoring when it comes to partnering with third parties.
Mr. FLOOD. Quick question about Kentucky, just so I can under-
stand your banking landscape here. The mix between federally
chartered banks and State chartered banks? In Nebraska, we have
139 State chartered banks. Now that is down from 180. We have
seen a lot more folks move their charter from the OCC to the State
side. What is happening in Kentucky? Are people moving to the
State or are they moving to the fed?
Mr. TRAGER. I think, I do not know, five, 6 years ago, it seemed
like there was some movement toward the fed, toward that. I think
that has kind of stabilized. At this time, I do not sense that there
is a lot of movement.
We are State chartered, FDIC. Primary—FDIC and the State are
our primary regulators. You know, there is some benefit to famili-
arity. They are familiar with us, we are familiar with them.
Given some of the innovative products that we have, it is very
helpful from an education standpoint when they come in that we
do not have to start from scratch and refamiliarizing them with the
things that we do.
Mr. FLOOD. As a State chartered institution, how is the Kentucky
legislature looking at digital assets, digital asset custody? Is there
a State regulatory framework that is in place or being talked
about? Is it something you are interested in?
Mr. TRAGER. I am not knowledgeable in that regard.
Mr. FLOOD. It is pig Latin to most people over 35. I hear you.
Mr. TRAGER. Right, right.
Mr. FLOOD. I guess I ask because one of the questions we are
going to have in Washington is, we have this question, there are
a lot of folks on the other side of the aisle especially that want a
Federal top-down thumb on everything when it comes to digital
asset custody. For me, a State pathway is very, very, very impor-
tant. As a State chartered institution working with your State sen-
ators and your State representatives, I really hope that the banks
in the State of Kentucky can continue to be State regulated and
not have to deal with some foreign power. The State of Kentucky
should determine its own future in digital assets. When your cus-
tomers and you feel like it is the right time to take custody of their
digital assets, I hope that you can do that without burdensome in-
terference from the Federal Government.
58

With that, thank you, Mr. Chairman. I yield back.
Chairman BARR. Spoken like a true former State legislator. For
those of you who do not know, Congressman Flood was the speaker
of the unicameral legislature in Nebraska. Thank you for sticking
up for the Commonwealth of Kentucky from Nebraska.
Mr. FLOOD. I am a Kentucky colonel.
Chairman BARR. So thank you to all of my colleagues for making
the trip today. Thank you to our witnesses.
These field hearings are—they are hard to plan, because we are
bringing Congress to the American people and it is expensive and
it takes time and a lot of effort. I want to thank my staff for orga-
nizing this. It takes a lot of hard work. So Mary Rosado, my chief
of staff, I want to thank Tatum Dale, my district director, and our
entire district staff, Tyler Staker my communications director,
Kaylee also for helping out. All of you all.
Let me also thank the staff of the Financial Services Committee.
Megan Guiltinan, my Financial Services Committee staffer, Jeff
Reyes, who is the staff director of the FI subcommittee, Kathleen
Palmer, David McGrath, Trish Halloren, Grace Tricomi, Beau
Brooks, Glen Sears representing the Minority Staff, Rob Waggoner,
and Jelia Megawati with Representative Rose. Thanks to all of you
all for putting this together, and to our guests, thanks for being
here.
To our witnesses, we are so grateful for your insightful testi-
mony.
Without objection, all members will have 5 legislative days with-
in which to submit additional written questions for the witnesses
to the chair which will be forwarded to the witnesses for their re-
sponse. I ask our witnesses to please respond as promptly as you
are able.
[The information referred to was not submitted prior to printing.]
This hearing is now adjourned.
[Whereupon, at 11:19 a.m., the subcommittee was adjourned.]
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