Testimony Before the NYC Council Committee on Immigration, Regarding IDNYC Program Oversight

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Delivered by Deyanira Del Rio, Co-Director, New Economy Project

February 11, 2019

Good afternoon, Committee Chair Menchaca and members of the Committee. Thank you for holding today’s IDNYC oversight hearing, and for the opportunity to testify. My name is Deyanira Del Rio and I am the co-director of New Economy Project, an economic justice organization that works with community groups and low-income New Yorkers throughout NYC. New Economy Project was part of the original municipal ID coalition that worked with the City to create and promote IDNYC in 2015, and we applaud Mayor de Blasio and the City Council for launching this vital program. Like other coalition partners here today, we remain committed to ensuring the continued integrity of the program and security of undocumented, homeless, and other New Yorkers who rely on IDNYC in their daily lives.

My testimony today will focus on the Mayoral administration’s dangerous proposed plan to partner with a financial technology or other financial services company to embed an EMV/contact and RFID/contactless chip in the next generation of IDNYC cards, to allow for broad integration with private and public services and systems.¹

New Economy Project unequivocally objects to the administration’s planned integration of IDNYC with financial services, MTA, and other systems. Such sweeping integration would result in massive data collection about IDNYC cardholders and expose undocumented and other New Yorkers to serious privacy, surveillance, and financial risks. Our organization fights for fair access to banking — but this is not the way to achieve that.

It is vital that the NYC Council understand just how problematic — and dangerous — this proposal is. Given the threshold issues presented today, it should be clear that the risks presented would not be eliminated by making tweaks to the proposed program. We urge you to join us in calling on the administration to abandon its plan.

My testimony will focus on a few main points:

1. The administration’s proposed plan would unnecessarily jeopardize the integrity and security of IDNYC and undermine public confidence in the program.
2. The administration’s proposed plan would not, in fact, address “bank deserts” or expand access to banking.
3. Nonbank and financial technology (fintech) companies, with which the City would likely partner to implement its envisioned plan, present specific fair lending, privacy, and consumer protection risks.
4. The administration should pursue progressive approaches to financial inclusion that prioritize equity and transparency, in partnership with community groups and other stakeholders.

Founded in 1995, New Economy Project works with community groups and low-income New Yorkers throughout the city to build an economy that works for all, based on principles of cooperation, equity, racial justice, and ecological sustainability. We have been at the forefront of efforts in New York and nationally to combat predatory finance; hold regulators and elected officials accountable; and support cooperative finance and community-led development. Our staff includes nationally-recognized experts on financial regulation and consumer protection, fair housing and fair lending, community development finance, debt collection, immigrants’ rights in the banking system, and more. My comments today are informed by New Economy Project’s 24 years of experience providing legal advice and representation to low income New Yorkers; bringing major impact litigation against predatory financial companies; conducting community know-your-rights workshops for tens of thousands of people; and securing local, state, and federal policy changes on issues ranging from subprime lending, foreclosures, and debt collection to immigrant taxpayer rights, insurance redlining, payday lending, and more.

1. PROPOSED CHANGES WOULD UNNECESSARILY JEOPARDIZE THE INTEGRITY OF IDNYC AND UNDERMINE PUBLIC CONFIDENCE IN THE PROGRAM
The administration’s proposed changes would go far beyond IDNYC’s original intent of providing safe, government-issued photo ID to immigrant, homeless and other New Yorkers. The City would in effect be creating a platform through which a range of public and private services would be connected to people’s identity cards — now and going forward — without a clear sense of the kinds of data that will be created, or how this data will be used. The proposed changes would raise risks that outweigh any potential benefits, and chill uptake and renewal of IDNYC cards among populations it was designed to serve. Other groups here today are testifying in greater detail about privacy, surveillance, and other risks associated with the proposed plan.

The administration’s rationale and motivation for pursuing these changes are unclear, given the risks to vulnerable New Yorkers. The administration has cited multiple, distinct reasons for incorporating changes to the IDNYC card. Rather than pursue wholesale integration with IDNYC as a solution to distinct issues and concerns, the City should address each of these on the merits, and develop solutions that do not expose IDNYC cardholders to undue risk.

2. THE ADMINISTRATION’S PLAN WOULD NOT EXPAND ACCESS TO BANKING
As a steering committee member of the municipal ID coalition, New Economy Project worked closely with coalition partners and the administration to ensure that IDNYC was designed to meet federal regulatory requirements, precisely so that banks and credit unions could accept IDNYC as primary ID to open accounts. Fourteen financial institutions currently accept IDNYC as a primary form of identification. These include the city’s not-for-profit community development credit unions, which not only open accounts for IDNYC cardholders but also provide responsible loans, Individual Taxpayer Identification Number (ITIN) application services, free tax preparation and financial counseling, and more to promote their members’ well-being and financial stability. Large national banks, for their part, do not accept IDNYC or recognize it only as a secondary form of ID, adding to barriers that immigrant and low-income New Yorkers face with respect to banking access. The federal regulators, meanwhile, have clearly affirmed that banks are permitted to accept IDNYC as they would other forms of government-issued ID.²

The administration has cited big banks’ refusal to accept IDNYC in justifying its pursuit of a fintech solution. This plan, however, would do nothing to increase acceptance of IDNYC by banks or credit unions, which would continue to open accounts based on their existing identification and other requirements. What would be newly-introduced through this proposal is a reloadable prepaid debit option, discussed below, widely regarded by advocates, financial regulators and experts as an inferior option to fully-insured, federally-protected depository accounts. By steering IDNYC cardholders to these services, the City would effectively be reinforcing disparities in banking access.

3. NONBANK AND FINANCIAL TECHNOLOGY (FINTECH) COMPANIES PRESENT SPECIFIC FAIR LENDING, PRIVACY, AND CONSUMER PROTECTION RISKS.
The administration has stated that IDNYC cardholders who do not have bank or credit union accounts would have the option to load funds into a prepaid account, linked to their IDNYC cards. Cities like Oakland, CA, that have previously incorporated prepaid debit services directly into their municipal ID cards quickly ceased to do so, because of widespread and widely-reported problems including high and hidden fees charged to cardholders.³ Other cities, including Chicago, considered and ultimately decided that connecting their municipal IDs to financial services was too risky. The NYC municipal ID coalition opposed a similar proposal when IDNYC was developed in 2015. The Center for Popular Democracy, which has advised and supported municipal ID programs throughout the country, recommends against incorporating financial services on the IDs, citing problems experienced by municipalities like Oakland as well as regulations that require financial institutions to retain customers’ documents used to open accounts for five years after the account is closed.⁴ We are unaware of any municipal ID program connected to financial services, at this point — for good reason.

Problems with prepaid debit cards are widespread and not limited to those connected to municipal IDs. These cards, targeted to lower income people, are not uniformly covered by the strong federal consumer protections that shield all bank and credit unions accounts, in the event of fraud or loss of funds. Depending on how prepaid cards are established, a cardholders’ funds may or may not be fully FDIC-insured. In October 2015, the RushCard company left thousands of people stranded — in some cases, for weeks — without access to their wages, Social Security benefits, and other funds.⁵ NetSpend was cited for engaging in deceptive marketing and other practices, and the list goes on.⁶ For decades, prepaid debit card companies have touted their product as a solution to “banking deserts” and, for decades, the rhetoric has failed to match the reality. Whatever one thinks of the product, New Yorkers who wish to purchase prepaid debit cards can readily do so online, at check cashing storefronts, drugstores, and other locations. There is no compelling reason for the City of New York to steer IDNYC cardholders to this service, much less to connect it to people’s identity cards.

Financial technology (fintech) companies engage in broad and invasive data collection, and often attempt to circumvent strong state consumer protection laws, like New York’s interest rate (usury) cap.⁷ According to U.S. PIRG and Center for Digital Democracy, “The use of personal data by Fintech companies is pervasive and touches every aspect of their business operation, including marketing, customer loyalty management, pricing, fraud prevention, and underwriting…..either directly collecting data from consumers or relying on third parties for Big Data analytics to classify consumers and to make predictions about them.” The consequences “are not well understood and may further increase social inequities.”⁸

Under the Trump administration, federal regulators are seeking to exempt fintech companies from key consumer protection rules.⁹ The national bank regulator has moved to issue “special purpose charters” to nonbank fintech companies, potentially conferring broad powers to evade state consumer protection laws. New York State’s Department of Financial Services has forcefully cracked down on abusive practices by online lenders and taken outspoken positions on fintech.¹⁰ In short, the City of New York would be exposing IDNYC cardholders and the IDNYC program to serious risks by steering undocumented, low income and other New Yorkers to fintech companies.

We must note that the administration has previously stated to groups like ours that it is interested in making loans and alternative credit scoring available, through IDNYC. This would be an extremely dangerous move likely to open the door to usurious lending and other abuses. This reinforces the administration’s lack of understanding about the industries with which it is seeking to partner and the serious risks involved.

4. THE ADMINISTRATION SHOULD PURSUE PROGRESSIVE APPROACHES TO FINANCIAL INCLUSION THAT PRIORITIZE EQUITY AND TRANSPARENCY, IN PARTNERSHIP WITH COMMUNITY GROUPS AND OTHER STAKEHOLDERS.

New York City is a banking capital of the world, and billions of municipal dollars move through banks each year. New York is also home also to some of the strongest community development financial institutions (CDFIs) in the country, including the community development credit unions that have stepped up to accept and promote IDNYC, from day one. New York City and State enforcement agencies have been national leaders in promoting responsible lending, cracking down on unfair and abusive industries and practices, and keeping payday and other forms of predatory lending out of our state, working closely with financial justice, labor, and civil rights advocates and coalitions. The administration and Council should work with these and other stakeholders to craft solutions to bank redlining that address root causes and ensure equitable access to financial services for all New Yorkers.

We appreciate the opportunity to testify at today’s hearing, to shine a light on groups’ serious concerns and unanswered questions about proposed IDNYC program changes. When groups like ours learned about the administration’s plan and expressed concerns throughout the summer, MOIA and HRA repeatedly said the RFEI was “exploratory” only and that further discussion, research and engagement would follow. In mid-December, the administration contacted groups saying they were moving forward, and soon after issued a “solicitation for negotiated acquisition” with responses due soon thereafter. The process has moved forward quickly, without meaningful consultation or engagement of community groups, advocates, City Council, and the broader public, including IDNYC cardholders. The lack of transparency is a stark contrast to the collaborative way in which groups and the City worked together to create and promote public confidence in IDNYC, and gives the impression that the administration is on a fast track and this is a “done deal.”

We urge the City Council to use its oversight authority to obtain concrete answers to the many questions and concerns groups have raised (including in the attached letter and memo). We hope that the Council will probe into the administration’s Request for Expressions of Interest and subsequent Solicitation for Negotiated Acquisition to identify the kinds of companies with which the administration is considering partnering and the projected costs to the City of New York. We further urge the Council to probe how the current IDNYC proposal may relate to other city initiatives, as well as any potential conflicts of interest between administration officials and companies responding to the administration’s solicitations.

Thank you for your consideration. I would be happy to answer any questions.

 

1. The City issued a Request for Expressions of Interest (RFEI) in an “IDNYC Dual Interface Card Payment Initiative” on May 30, 2018, with responses from financial services providers due by June 29, 2018. In mid-December, the City issued a solicitation for negotiated acquisition, with responses from financial services providers due on January 8, 2019 (the deadline was then extended by 10 days). See https://tech.cityofnewyork.us/2018/05/22/idnyc-nycx-rfei/.

2. On April 30, 2015, the federal bank regulators, including Treasury Department’s Financial Crimes Enforcement Network (FinCen), issued a joint letter confirming that banks may accept IDNYC to verify a customer’s identity, and use the ID card’s number as a valid identification number for non-U.S. citizens.

3. See, e.g., https://www.sfgate.com/bayarea/article/Oakland-debit-card-fees-draw-criticism-4368734.php#ixzz2O5Nxqfka

4. See, CPD Municipal ID Toolkit, at https://populardemocracy.org/sites/default/files/Municipal-ID-Report_WEB_Nov2015_0.pdf

5. See, e.g., https://www.consumerfinance.gov/policy-compliance/enforcement/actions/unirush-llc-and-mastercard-international-incorporated/

6. See, e.g., https://www.ftc.gov/news-events/press-releases/2016/11/ftc-charges-prepaid-card-company-deceptively-marketed-reloadable

7. See, e.g., Senate Testimony by Frank Pasquale, Professor of Law, University of Maryland, “Exploring the Fintech Landscape”, at https://www.google.com/url?q=https://www.banking.senate.gov/download/pasquale-testimony-9-12-17pdf&sa=D&ust=1546531847924000&usg=AFQjCNEuinJlk00_U_5hFPUZQLfQ7oyVGA

8. See https://www.occ.gov/topics/responsible-innovation/comments/comment-cdd-uspirg.pdf

9. https://news.bloomberglaw.com/banking-law/2019-outlook-cfpb-innovation-policies-may-face-state-challenges and https://www.occ.treas.gov/topics/responsible-innovation/comments/comment-ny-atty-general.pdf

10. See https://www.dfs.ny.gov/reportpub/online_lending_survey_rpt_07112018.pdf and https://www.occ.treas.gov/topics/responsible-innovation/comments/comment-ny-dfs.pdf