While industry experts agree the Office of the Comptroller of the Currency's proposal to consider granting fintech bank charters has broad implications for the banking industry, they disagree on what those implications are. The proposal was set forth in the OCC's December 2016, white paper, Exploring Special Purpose National Bank Charters for Fintech Companies.
Critics say the granting of fintech bank charters could hurt startups and consumers. Advocates say it would promote innovation and financial inclusion. A number of financial analysts believe supporters and detractors are separated by political fault lines, with Democrats and state governments among the most vocal opponents.
In a letter to U.S. Comptroller Thomas J. Curry, U.S. Sens. Sherrod Brown, D-Ohio, and Jeff Merkley, D-Ore., who serve on the Banking, Housing, and Urban Affairs Committee, suggested the OCC's proposal could harm consumers, stifle innovation and threaten financial stability. They shared concerns about the paper's language and "loosely defined" criteria.
"While we share your goal of ensuring that affordable banking products are more accessible, we are concerned with the OCC's proposal to expand its powers by chartering non-bank institutions," they wrote. "Offering a new charter to non-bank companies seems at odds with the goals of financial stability, financial inclusion, consumer protection, and separation of banking and commerce that the OCC has upheld under your tenure."
The senators noted language in the OCC's proposal goes beyond the scope of accommodating fintech firms by including marketplace lenders, financial planners and wealth management firms as potential recipients of alternative nonbank charters. They added this runs contrary to the OCC's narrowly defined authority "to charter only three specific types of special-purpose national banks" that do not accept deposits: bankers' banks, credit card banks and trust banks.
New York State Financial Services Superintendent Maria T. Vullo stated the OCC's proposal would bypass state consumer protection laws and create "regulatory arbitrage." New York's Department of Financial Services is better equipped to regulate "cash-intensive nonbank financial service companies" by providing strict oversight and enforcing anti-money laundering, consumer identification and transaction monitoring, she stated.
Vullo's opinions are reflected in a Jan. 13, 2017, comment letter to Comptroller Curry from the Conference of State Bank Supervisors, representing 50 U.S. states, the District of Columbia, Guam, Puerto Rico, and the U.S. Virgin Islands. The CSBS feels the OCC would be overstepping its authority by issuing a new type of charter that would distort the financial services marketplace and create uncertainty and risks pertaining to government resources, while limiting the states' ability to protect consumers.
Advocates see the granting of fintech charters as both welcome and inevitable. Scott Talbott, Senior Vice President of Government Affairs at the Electronic Transactions Association, said fintech has made financial services accessible through mobile and online apps and a range of free and low-cost digital services. In a Jan. 17, 2017, letter to Comptroller Curry, Talbott wrote, "It's clear that online small business lending is reaching a broad market, and that providing quicker access to capital allows small businesses to invest in their employees, purchase more inventory, expand their services, and ultimately grow their businesses."
NYPAY, a professional networking group, hosted a panel discussion Feb. 21, 2017, to further explore the issue. David True, payments industry consultant and NYPAY President, said the discussion was intended to expand on the OCC's proposal, which continues to evolve in response to the new administration and proposed changes to the regulatory environment.
The panel, moderated by Tom Scanlon, Counsel at Davis, Wright, Tremaine LLP and former Senior Counsel for the U.S. Department of the Treasury, included Andrew Lorentz, Partner at Davis, Wright, Tremaine; Kathy Tomasofsky, Director at Money Services Business Administration; and Stuart Sopp, Chief Executive Officer of Current.
Panelists noted the OCC was established in 1863 as part of the national banking system under the National Currency Act. It brought cohesiveness to what had been a fragmented approach to banking and ultimately helped the Union finance the Civil War. Taking steps to steady the financial system through good times and bad and weathering the challenges each era has brought, the OCC launched a framework for responsible innovation in 2016.
While praising the OCC for staying attuned to the evolving payments landscape, panelists noted its white paper recommended bringing fintech under uniform supervision, without providing an overarching definition for fintech. The white paper stated firms applying for a special charter would need one of three qualifying criteria: it would have to receive deposits, pay by check or debit cards, or lend money.
"Under the current administration, there is a lot of open agenda to address fintech issues but little specificity," Tomasofsky said. "The House and Senate will be approving and consolidating bills and rolling back regulations in conjunction with the Congressional Review Act and Financial Choice Act."
Pointing to the numerous open questions about fintech charters, a changing regulatory environment and uncertainties about the incoming Comptroller, panelists agreed the OCC's fintech application process may not be the best vehicle for a startup that wants to get to market quickly.
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