Should ‘Big Tech’ Companies be Prohibited From Offering Banking Services? (H.R. 4813)
Do you support or oppose this bill?
What is H.R. 4813?
(Updated May 29, 2020)
This bill — the Keep Big Tech Out of Finance Act — would close a series of loopholes that allow commercial firms to obtain bank charters. It would prohibit large platforms, such as Facebook, from becoming financial institutions or operating a digital asset intended to be broadly used as a medium of exchange.
Violations of this bill would be punished by a fine of up to $1 million per day while the violation remains unaddressed.
A “large platform” would be defined as a tech company with annual global revenues exceeding $25 billion.
Argument in favor
Big tech giants like Facebook are rapidly entering the financial services market without ensuring that consumers are properly protected or that they’re compliant with applicable regulations. This trend is worrying given these companies’ size, the amount of consumer data they own, and, in Facebook’s case, its history of privacy violations. Keeping big tech companies out of banking is an important check against these companies becoming “too big to fail,” using their user data to boost their banking businesses, or morphing into monopolies that control too many aspects of consumers’ lives.
Argument opposed
Barring big U.S. tech companies from entering the banking sector is likely to cause the U.S. to fall behind in cryptocurrency and digital payments, ceding this important aspect of the future global economy to competitors like China. The supposed appropriate separation between banking and commerce is an artificial product of lobbying by the banking industry, and doesn’t need to be preserved to keep consumers safe. Regulators should allow anyone — including big tech companies like Facebook — who wants to innovate in the payments space to do so.
Impact
Banking consumers; cryptocurrency consumers; potential Libra consumers; tech companies with annual global revenues exceeding $25 billion; tech companies with annual global revenues exceeding $25 billion that want to enter the banking sector; Libra Association; and Libra stablecoin.
Cost of H.R. 4813
A CBO cost estimate is unavailable.
Additional Info
In-Depth: Sponsoring Rep. Jesús “Chuy” García (D-IL) introduced this bill to block Facebook from developing digital currency through the Libra Project:
“I introduced the Keep Big Tech Out of Finance Act… [to] prevent Facebook and other tech giants from developing digital currencies or assets like Libra. Big tech companies like Facebook are entering the financial services market at an alarming rate. Given the enormous access that tech giants like Facebook have to people’s data and their ability to manipulate markets through their size and power, the prospect of them operating a bank or currency is troubling. Left unregulated, Facebook is another ‘too-big-to-fail institution’ like those that caused the 2008 financial meltdown. Not only will Facebook use their monopoly on private data to manipulate markets, consumers will be exposed to immense financial risks without government protections for their money or investments. [Facebook CEO] Mr. [Mark] Zuckerberg stated that Facebook should not be regulated like a bank or by the SEC, despite growing expert legal agreement about how to protect consumers. Zuckerberg basically said that he doesn’t want anyone looking over his shoulder or reviewing his company’s books. Given Facebook’s track record of evading criminal liability, abusing private data, and manipulating markets with their monopolistic power, regulators should be considering how to break up Facebook, not greenlighting a new, dangerous project like Libra. We have a responsibility to protect the American public and every day consumers. To do so, we must hold Big Tech giants like Facebook accountable and keep them from entering the currency market. My Keep Big Tech Out of Finance Act does just that.”
In another statement, Rep. García also argued that tech companies should seek to partner with government, not to create their own independent systems:
“If big tech is interested in advancing a system that they feel is important in the 21st century, they should seek to partner, perhaps, with government and not lay out a completely independent system.”
CREDO Action supports this bill. It identifies four key problems with Libra, arguing that it would: 1) centralize corporate control by giving Facebook more power and undermining sovereign states’ currencies; 2) promote tax dodging and money laundering by making it easier for people to hide their money in a new network with global reach; 3) erode freedom due to lack of clear limits on Facebook’s ability to use data from Libra purchases, racist discrimination into its algorithms, change the rules in the future, or demand that employees take payment in its currency; and 4) put consumers at work with none of the guarantees, oversight, and protections in traditional banking. With these concerns in mind, CREDO says:
“Libra is already under pressure, with a handful of major partners dropping out even before Zuckerberg's testimony. But at a time when Big Tech is increasingly looking for ways to expand its monopolistic power and use vast reams of data to move into finance, we need a more thoughtful response. Rep. García's legislation, the Keep Big Tech Out of Finance Act, would prohibit Facebook and other big tech companies from preying on us with digital currencies – and we need to make sure every member of Congress knows it has our support.”
Federal Reserve Chairman Jerome Powell testified to the House Financial Services Committee about his concerns with Libra in July 2019. He said:
“Libra raises many serious concerns regarding privacy, money laundering, consumer protection and financial stability. There are concerns that should be thoroughly and publicly addressed before proceeding.”
In mid-July 2019, Treasury Secretary Steven Mnuchin raised concerns that Libra could be used to finance terrorism to due its opacity. He said, “We will not allow digital asset service providers to operate in the shadows.”
In a July 11, 2019 tweet thread, President Donald Trump also raised concerns about Libra:
“I am not a fan of Bitcoin and other Cryptocurrencies, which are not money, and whose value is highly volatile and based on thin air. Unregulated Crypto Assets can facilitate unlawful behavior, including drug trade and other illegal activity. Similarly, Facebook Libra’s “virtual currency” will have little standing or dependability. If Facebook and other companies want to become a bank, they must seek a new Banking Charter and become subject to all Banking Regulations, just like other Banks, both National and International. We have only one real currency in the USA, and it is stronger than ever, both dependable and reliable. It is by far the most dominant currency anywhere in the World, and it will always stay that way. It is called the United States Dollar!”
John Berlau, a senior fellow at the Competitive Enterprise Institute, argues that it would be a mistake to allow politicians to bar technology firms from entering banking. In a July 25, 2019 Forbes op-ed, he wrote:
“Washington politicians may disagree on what to do at the U.S. border, but when it comes to technology firms entering banking, it seems many from both parties want to build a wall. Ironically, this virtual barrier would primarily keep out not foreign financial firms, but American non-bank innovators with new financial products that could greatly benefit American consumers. For these politicians, ever since it announced plans for a cryptocurrency called Libra, Facebook has become the number-one figurative barbarian at the financial gate… [P]oliticos seem to dismiss Libra, which would be jointly managed by Facebook and dozens of members of the Libra Association, without giving any mind to the benefits it could offer in expanding access to capital, credit, and basic banking services. The Libra white paper introducing the cryptocurrency points out that particularly for lower-income consumers, ‘hard-earned income is eroded by fees,’ and ‘blockchains and cryptocurrencies have a number of unique properties that can potentially address some of the problems of accessibility.’ We have yet to see if blockchain and cryptocurrency can live up to this promise, and even if they do, whether it will be Libra that will come out on top… But none of the cryptocurrencies will likely reach their full potential in aiding consumers if well-managed companies are barred from entering this sector… [A]lthough the technology envisioned by Facebook and other backers of the Libra currency is new, U.S. policymakers have a long history of telling innovative firms to “keep out” of finance. These restrictions have demonstrably harmed American consumers, savers, and entrepreneurs.”
Berlau added that the “supposed wall of separation between banking and commerce rests on a very shaky foundation,” dating back to Congress blocking non-financial firms from going into banking at the politically powerful bank lobby’s behest—not due to any well-thought out policy considerations. Citing a 2011 Milken Institute report by financial analysts James R. Barth and Tong Li, he also noted that the U.S. is “virtually the only industrial country that broadly bans nonfinancial firms from establishing banking units” (according to the Milken Institute report, the U.S. is the only G20 country opposed to the mixing of banking and commerce).
Facebook argues that Libra would increase financial inclusion for those without access to financial services (however, the mechanism by which it would achieve this isn’t clear). Rep. Rashida Tlaib (D-MI) says Libra targeting the unbanked without sufficient financial literacy is precisely her concern. She says, “My worry is that they're going to target communities like mine. My residents are not going to be ready, they're not going to fully understand what the implications here are.” Rep. Brad Sherman (D-CA) was even more pointed in an October 24, 2019, House Financial Services Committee hearing on Libra, calling Libra a “Zuck Buck” and comparing it with “powerful burglary tools.” Sherman questioned Libra’s necessity for the poor and unbanked and argued that, unlike the U.S. dollar, would provide greater solutions for tax evaders, drug dealers, and terrorists.
In his testimony during the July 2019 Libra hearings, Facebook vice president David Marcus argued that Libra is necessary to keep the U.S. ahead on digital payments and currencies, saying:
“I am excited about the potential that Libra holds, and I am proud that Facebook has initiated this effort here in the United States. I believe that if America does not lead innovation in the digital currency and payments area, others will. If we fail to act, we could soon see a digital currency controlled by others whose values are dramatically different. I believe that Libra can drive positive change for the many people who would benefit from it. I also believe that it can provide an opportunity for leadership consistent with out shared values.”
Marcus also provided some information on Facebook’s plans for Libra’s management and regulation. He said, “All decisions will be made democratically and transparently,” and that the Libra Association will be supervised by the Swiss Financial Markets Supervisory Authority (FINMA), with the Swiss Federal Data Protection and Information Commissioner (FDPIC) as the Libra Association’s privacy regulator.
Facebook CEO Mark Zuckerberg choed Marcus’ testimony on his October 24, 2019, testimony before the House Committee on Financial Services. Noting that “China is moving quickly [toward] the launch of a similar idea in the coming months,” he made the case for Libra as a way to protect American financial leadership:
“Libra is going to be backed mostly by dollars, and I believe that it will extend America’s financial leadership around the world, as well as our democratic values and an oversight. But if America doesn’t innovate, our financial leadership is not guaranteed.”
Zuckerberg also called the financial industry “stagnant” and said that there’s currently “no digital financial architecture to support the innovation we need.” With those observations, he argued that Libra could help address these problems.
Rep. Andy Barr (R-KY) expressed support for Zuckerberg and Libra in the October 24 hearing, praising his innovative approach to financial services:
“Criticism is cheap. Anybody can criticize. As you can see here today, politicians in Washington are pretty good at lodging criticism. But creating something of value is significantly more difficult, and I would commend you for being an innovator and trying to create something of value.”
This legislation doesn’t have any cosponsors. It’s expected to struggle to pass due to resistance from innovation-oriented House Republicans. Passage in the GOP-controlled Senate is similarly expected to be an uphill battle.
Of Note: The Libra project is a stablecoin developed by the Libra Association, a Geneva, Switzerland-based organization. In June 2019, it announced plans to develop Libra, a currency built on a blockchain and backed by a reserve of real assets, the Libra Reserve. Libra is intended to be available through a standalone app and through Facebook’s Messenger and WhatsApp products. Unlike traditional cryptocurrencies, Libra would be designed to target more mainstream users, particularly those who don’t engage with the traditional financial system but who have access to mobile phones (the unbanked sector).
Although Facebook is one of several founding members of the Libra Association, everyone agrees that it’s the de facto controller. This is especially true in light of the fact that Facebook is the sole owner of Calibra, a digital wallet for holding Libra coins.
In most ways, Libra acts a cryptocurrency like Bitcoin, but it would be under Facebook’s control. In testimony before the House Financial Services Committee on October 23, 2019, Facebook CEO Mark Zuckerberg said that Libra shouldn’t be regulated by a bank or by the Securities and Exchange Commission (SEC).
Recently, Facebook has come under fire over privacy concerns. It’s currently under investigation by 47 state attorneys general and regulators in multiple nations, and recently paid a record-breaking $5 billion fine for privacy violations that allowed a right-wing firm to exert influence in the 2016 election.
Media:
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Sponsoring Rep. Jesús “Chuy” García (D-IL) Press Release
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CREDO Action (In Favor)
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Forbes Op-Ed (Opposed in Principle)
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The American Prospect
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Coin360
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Cheddar
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Wolters Kluwer
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Lifehacker
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Reuters
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Bloomberg (Context)
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The Milken Institute Report (Context)
Summary by Lorelei Yang
(Photo Credit: “Libra Coin 3D Render” by btckeychain via Flickr / Creative Commons)The Latest
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