On Wednesday, July 21, CEI Senior Fellow John Berlau testified before the House Financial Services Committee, Subcommittee on Consumer Protection and Financial Institutions on how best to improve consumer access to financial services. His written testimony can be read in full here, and a recording of the hearing—entitled “Banking the Unbanked: Exploring Private and Public Efforts to Expand Access to the Financial System”—can be viewed on the Committee’s website.
John and his fellow witnesses were testifying on three bills intended to remove obstacles to financial inclusion faced by the unbanked: the Expanding Financial Access for Underserved Communities Act, Access to No-Fee Accounts Act, and Public Banking Act of 2021.
John commended the Expanding Financial Access for Underserved Communities Act, which would permit credit unions to expand their membership fields into underserved areas. He noted how this would lift certain regulatory barriers that currently constrain credit unions, and applauded it as an example of increasing financial competition through bottom-up liberalization.
On the other policies, however, he expressed serious concern. First, he cautioned that the Access to No-Fee Accounts Act,” which would enable the Federal Reserve to compete with banks and credit unions by providing no-fee transaction accounts to consumers, could have grave implications for consumer privacy and data security. He observed that the bill would grant the Fed direct access to “billions of nuggets of information the government, frankly, has no right to know,” without a warrant or clear security against hacking.
The Public Banking Act of 2021, meanwhile, would introduce banking units owned by the U.S. Postal Service and state governments and provide a federal charter to those entities. John criticized the bill not only for its threats to privacy and security, but for its stated goal of prohibiting chartered banks from providing loans to or investing in fossil fuel projects. He demonstrated the incoherence of this by citing the state-owned Bank of North Dakota, which was cited as an example of successful public banking by some of the progressive witnesses, and which would be excluded under the bill for its financing of drilling and fracking in the state.
John also described a variety of legislative measures that could help ensure an open financial system, such as the adoption of the SAFE Banking Act and revision of the Truth in Lending Act to prevent top-down annual percentage rate caps on small-dollar loans.
During the Q&A session that followed, Rep. Ted Budd (R-NC) drew attention to how a majority of college and high school graduates lack the basic financial knowledge required to manage interest or open a checking account. When it comes to educating Americans and encouraging involvement with the financial system at an early stage, John noted that parents, teachers, and religious leaders should not be afraid to discuss money candidly. He also pointed out that new FinTech apps provide tools young people can use to understand savings and investment.
Rep. David Kustoff (R-TN) asked John to describe the effect of the Dodd-Frank Wall Street Reform and Consumer Protection Act on community banking. In response, John cited a Harvard Kennedy School study that found that the number of bank branches rapidly decreased after the enactment of Dodd-Frank.
On the Democratic side, Rep. Brad Sherman of California asked John to elaborate on how the Expanding Financial Access for Underserved Communities Act could aid consumers and small businesses who currently have no access to financial services. John noted that the bill would remove much of the red tape surrounding credit unions while potentially raising or repealing the member-business lending cap, which would allow credit unions to offer a greater number of loans to businesses in underserved areas.
John’s full testimony can be seen here.