Washington, June 25 (IANS) US lawmakers examined whether Congress should create a dedicated federal payments charter for financial technology companies, with industry leaders arguing that the existing banking framework has failed to keep pace with innovation, while critics warned that easing access to the nation’s payment infrastructure could undermine financial stability and consumer protections.
During a hearing of the House Financial Services Committee on Wednesday (local time), lawmakers explored whether payment companies that move money but neither accept deposits nor make loans should be allowed to operate under a new federal regulatory framework instead of navigating a patchwork of state licences.
David Portilla, a partner at Davis Polk, told lawmakers that the US regulatory system remains built around a traditional banking model in which institutions take deposits, extend credit and process payments together, even though those functions have increasingly become separate.
“A defining feature of our market today is that these once bundled features have, to a considerable degree, been unbundled,” Portilla said.
He argued that while specialised financial firms have emerged, “there is otherwise no general federal payments legislation and no federal payments licence,” leaving payment companies to navigate different state regulatory regimes.
“The remedy should not be to force new business models into ill-fitting categories,” he said. “Innovation is often best favoured by updated and clear legal standards that match today’s markets.”
Eileen O’Mara, Vice Chair at Stripe, echoed that argument, saying the current regulatory system forces payment companies into rules designed for banks.
“The current framework is defined as you’re a banker, you’re not a bank,” she said.
“We do not lend, and we do not invest” customer funds, she added. “The risks we manage are real, but they require a different kind of regulation.”
O’Mara said a dedicated federal payments charter would enable companies focused solely on payments to deliver “lower costs, faster settlement, and a more resilient system built for how businesses actually operate today.”
Lawmakers supporting the proposal argued that the United States risks falling behind other advanced economies in payments innovation if it fails to modernise its regulatory framework.
Several members cited the challenges faced by businesses that rely on multiple state licences and banking partners before gaining access to the Federal Reserve’s payment infrastructure. Supporters said a federal charter could simplify regulation while maintaining oversight tailored to payment companies rather than traditional banks.
Witnesses representing banks and consumer groups, however, urged caution.
Paige Paradon of the Bank Policy Institute warned that companies seeking new charters should not receive “the implicit imprimatur of federal oversight without accepting the full scope of those obligations.”
She argued that granting broader access to Federal Reserve payment services could encourage deposits to move from insured banks to uninsured institutions and create risks to financial stability.
“That is not a formula for innovation,” Paradon said. “It is a formula for regulatory arbitrage and for the gradual erosion of the safety and soundness standards that protect the American public.”
Tara Flynn of the National Community Reinvestment Coalition said any non-bank receiving access to the banking and payments infrastructure should face strong consumer protection rules, community investment obligations and rigorous supervision.
“When a non-bank receives access to the banking and payments infrastructure, it should come with responsibilities,” Flynn said.
–IANS
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