As the comment period ended on the Office of the Comptroller of the Currency's (OCC) proposal to establish a fintech charter, stakeholders weighed in on both sides of the idea.
The OCC announced in December that it will consider applications from fintech companies seeking national bank charters, enabling the company to originate loans and access the payment system directly without relying on third-party banks. An OCC charter would further allow fintech companies to operate across the country without the need for a separate license in each state where customers are located.
With the comment period closing on the proposal, stakeholders hurried to meet the deadline and weigh in on the OCC's plan. Some members of the industry were outspoken in their criticism, such as New York Department of Financial Services (DFS) Superintendent Maria T. Vullo, who said her agency opposes "the imposition of an entirely new regulatory scheme on an already fully functional and deeply rooted state regulatory landscape that is working."
"Technology is not new to financial services and thus using the term 'fintech' to potentially sweep all nonbank financial services companies not authorized by the National Bank Act into a new regulatory regime is highly problematic," the DFS wrote in its comment letter. States already regulate nonbank financial services companies and the creation of a special purpose charter threatens to undermine important consumer protections under state law, the regulator argued, such as the possibility of lenders skirting state usury laws.
Further, nonbank financial institutions present unique risks that are different from the entities the OCC has experience regulating, Vullo wrote. While the DFS supports efforts to encourage responsible innovation in the financial services industry, these efforts "should not be used as an excuse to widely extend and expand the OCC's jurisdiction, beyond the National Bank Act's reach, to types of entities that the OCC has not previously regulated."
The creation of a national charter is likely to stifle—rather than encourage—innovation because it would provide "an avenue for larger, more dominant firms to control the development of technology solutions in the financial services industry," according to the DFS letter. "The ability to start and license a business through a state licensing regime is the appropriate way to foster the development of technological enhancements and encourage small businesses."
Calling the proposed fintech charter "a complicated, problematic, new regulatory regime," the DFS opposed the plan.
Others had a more positive take on the proposal. The American Bankers Association (ABA) "supports the OCC's intent to consider special purpose charter applications from fintech companies as long as existing rules and oversight are applied consistent with those for any national bank," the group wrote. "Any such charter option must be implemented thoughtfully to ensure that the policy determinations underlying our bank regulatory framework are maintained, including the separation of banking and commerce. This means applicable rules are applied evenly and fairly across all national bank charters, and the OCC performs effective oversight to assure safe and sound operation and consumer protection."
Viewing the OCC's proposal as "an opportunity to further bring financial technology into the banking system," the ABA said that three aspects must be required of any newly chartered member of the national banking system: strong and consistent regulation, effective oversight, and charter responsibilities.
The Financial Services Roundtable (FSR) also threw its support behind the proposal. "We commend the OCC for its development of this proposal," the group wrote. "Just as the financial industry needs to evolve with technology and changing customer preferences, so, too, must financial regulations and the regulators themselves. A special purpose national bank charter for Fintech companies would be an important step in that process."
Technological innovation is not limited to nonbank entities, the FSR noted, however. "National banks are actively engaged in the digital transformation and, as such, their regulatory and supervisory treatment must be holistically considered and reexamined in any update of regulatory standards intended to address innovation and Fintech," the group suggested, emphasizing the importance of parity among the charters and the need to avoid a "two-tiered national banking system under which special purpose [f]intech banks are subject to compromised supervisory standards."
Charting something of a middle course, the Consumer Bankers Association (CBA) requested greater clarity from the OCC about the regulatory and supervisory framework that will be applied to fintech companies, withholding its support until more details have been provided. "Although CBA is not opposed to expanding the scope of companies eligible for a national bank charter, we believe fundamentally important decisions such as these should be based on well-developed policy positions that have weighed the risks and rewards to all stakeholders in the banking industry," the group wrote.
Similarly, the Independent Community Bankers of America (ICBA) said the OCC proposal "raises more questions than it answers," urging the agency to collaborate with other bank regulators and issue rules under the Administrative Procedure Act, subject to notice and comment. The group also stressed the need "to ensure a level playing field," with fintech chartered institutions subject to the same supervision and regulation as community banks.
To read the comment letter from DFS, click here.
To read the ABA comment, click here.
To read the FSR comment, click here.
To read the CBA letter, click here.
To read the ICBA comment, click here.
Why it matters
Comments on the OCC's proposal to create a special purpose national bank charter for fintech companies ran the gamut from staunch opposition to possible acceptance with some caveats to support and commendations for the regulator. Challenges by state regulators to the OCC proposal are of particular concern since cooperation between federal and state agencies in financial services regulation is critical to the overall health of the industry. With the comment period ended, the ball is now in the OCC's court.