The Office of the Comptroller of the Currency’s proposed fintech charter has drawn expressions of concern from a state regulator as well as two key banking industry trade associations.
In a letter to the OCC, Robbin L. Weissmann, Pennsylvania’s secretary of banking and securities, cited the broad application and ambiguity of the term “fintech,” the lack of fully disclosed details concerning the supervision and examination of fintech companies, and the possible federal preemption of existing state consumer protection laws.
Wiessmann pointed out that, while the OCC has identified thousands of so-called fintech companies, the agency has not defined the characteristics of a fintech company. The broad, over-generalization of the term “fintech,” she noted, lends itself to disorderly dialogue among regulators and between regulators and the companies they supervise.
In addition, while the OCC contemplates extending special non purpose national charters to fintech companies, Wiessmann is concerned about the OCC’s lack of clear guidance on how this federal agency will actually examine and supervise this unique class of institutions.
“Given the uncertainty surrounding which kinds of companies might become eligible for a special purpose national charter, the OCC’s proposal could invite companies currently licensed by state regulators to seek a national charter,” she said. “This unintended consequence could effectively preempt and negate many of the most effective consumer protection laws in a number of states, including Pennsylvania.”
The Independent Community Bankers of America argued in a comment letter that the OCC lacks explicit statutory authority to grant such charters and should request specific congressional approval prior to issuing a charter.
“ICBA strongly supports responsible innovation and welcomes the OCC establishing a new Office of Innovation that could potentially help those community banks that are interested in partnering with ‘fintech’ companies,” ICBA wrote. “However, ICBA has strong concerns about issuing special-purpose national bank charters to fintech companies without spelling out clearly the supervision and regulation that these chartered institutions and their parent companies would be subject to.”
In its comment letter, ICBA said the OCC should propose rules for public comment spelling out its examination and supervision expectations and other regulatory requirements; consult with the other banking agencies, particularly the Federal Reserve, concerning such issues as access to the Fed’s payment systems and its discount window; ensure large commercial entities are not allowed to own special-purpose national banks as subsidiaries, which would create conflicts of interest and extend the federal safety net to commercial interests; clearly define what is a “fintech” company and who would be eligible for such a charter; and ensure that any new chartered institution is subject to the same supervision and regulation as required of community banks.
For its part, the American Bankers Association wrote to the OCC expressing support of a limited-purpose national bank charter for fintech companies as long as existing rules are applied evenly and fairly, and with effective oversight.
The letter, signed by Rob Morgan, ABA’s vice president, emerging technologies, emphasized the significant benefits of financial innovation for consumers including improved transparency, more available credit and financial inclusion. “These benefits are only realized when innovations are delivered responsibly, as ensured by regulation and oversight,” said Morgan.
Morgan pointed out that consumers do not differentiate between financial service providers and expect the same level of protection regardless of the provider.
He also emphasized that effective implementation was of utmost importance and was critical to ABA’s support of this new charter. He encouraged the OCC to carefully consider the parameters of the charter. “This includes answering many difficult questions before granting any special purpose charter, including how to ensure that regulations and consumer protection are applied evenly; what protections must be in place to preserve existing laws regarding the separation of banking and commerce; and how would enforcement of operating agreements be accomplished, particularly those related to financial inclusion or other CRA-like responsibilities.”
The letter raises regulatory issues like capital requirements, liquidity and governance structure, recommendations for effective oversight and charter responsibilities. Morgan also urged the OCC to work with other agencies “carefully and cooperatively before any new charter is approved to assure that no current policy lines are directly or inadvertently moved as a consequence of this action.”