Bank regulator will now offer national approvals to financial tech firms

The Office of the Comptroller of the Currency (OCC) announced Tuesday that it would now consider bank charter applications from financial technology companies seeking approval to operate nationwide.

Comptroller of the Currency Joseph Otting said his agency will accept applications from online-only lenders, mortgage and loan servicers, and payment platforms to receive special-purpose federal bank charters. The OCC said companies that take and hold deposits from customers would not be eligible for the charter.

A federal charter would allow approved financial technology companies, known as fintechs, to operate throughout the country without seeking permission from each state. A fintech chartered as a national bank would avoid a costly state-by-state approval process, but would be subjected to federal banking regulations and inspections from the OCC.

{mosads}Otting said the OCC’s decision is intended to “provide more choices to consumers and businesses, and creates greater opportunity for companies that want to provide banking services in America.”

“Companies that provide banking services in innovative ways deserve the opportunity to pursue that business on a national scale as a federally chartered, regulated bank,” Otting said.

The OCC said charter recipients would be held to capital, liquidity and financial inclusion standards akin to those imposed on banks. Chartered fintechs would also be required to submit plans for how they’d handle severe financial stress or be dismantled upon failure.

Newly chartered fintechs would face stricter initial oversight from the OCC, similar to the heightened federal scrutiny new banks receive.

The OCC’s announcement drew cheers from fintechs and their representatives in Washington who had long sought a venue for federal approval.

The Electronic Transactions Association, a trade group for payments companies, said the OCC charter would “create a consistent and uniform regulatory framework” and ensure “that industry, customers and regulators are operating from the same rules and expectations.”

The OCC’s decision comes almost two years after the agency announced it would explore offering charters to fintechs, and hours after the Treasury Department recommended it do so. 

Former Comptroller of the Currency Thomas Curry, an Obama appointee, kicked off that process in December 2016, sparking concern among some bank advocates and state regulators.

The Conference of State Bank Supervisors (CSBS) and New York Department of Financial Services sued the OCC over its plan to explore charters for fintechs. Their case was dismissed in December 2017 because the OCC had not yet decided to offer the charters.

Otting took over the OCC a month before the suit was dismissed and later said he was open to a special-purpose fintech charter. He also said last April that the agency would announce whether it would move forward with a fintech charter sometime this summer.

Both regulatory agencies panned Otting’s decision to offer fintech charters and said it would pose immense risks to the U.S. financial system.

“Let us not forget that the last time the OCC pre-empted state consumer protection laws in a sweeping manner — in the early 2000s — predatory lenders were let off the hook and contributed to the largest number of home foreclosures since the Great Depression,” said CSBS president and CEO John Ryan.

Financial sector skeptics also criticized Otting’s decision along the same lines. Sen. Sherrod Brown (D-Ohio) said, “As if it weren’t bad enough the Administration wants to give payday lenders a free pass to trap people in debt, now it is actively undermining Ohio’s efforts to protect working people from these predators.”

A coalition of financial sector watchdog groups and advocates for stronger consumer protection laws also condemned the OCC’s announcement, including the Center for Responsible Lending, Americans for Financial Reform, National Consumer Law Center and Consumer Federation of America.

The OCC is likely to face several legal challenges to its plan to offer fintech charters, but the broader financial industry largely welcomed the decision. Some bank and credit union advocates also praised the OCC for saying it would hold fintechs to equivalent standards to those faced by traditional financial services firms.

Dan Berger, president and CEO of the National Association of Federally Insured Credit Unions (NAFCU), said his group supports a fintech charter and believes “fintech companies require a minimum level of regulation and supervision to ensure a level playing field.”

Richard Hunt, president and CEO of the Consumer Bankers of America, tweeted “Bring it on…..as long as there is a level playing field!!!”

–Updated at 4:06 p.m.