The regulatory landscape of the U.S. fintech industry could soon see a milestone development, as the Office of the Comptroller of the Currency (OCC) is expected to release its long-awaited position on a proposed charter for online lenders. If the OCC proceeds with the charter, it would allow fintech firms, such as marketplace lenders, to apply for approval to operate nationwide rather than having to seek approval from individual state regulators or enter into program arrangements with banks. If granted, the charter could potentially open a new segment of the market to fintech firms, which offer lending and other financial services to consumers and small businesses that are traditionally underserved by banks and finance companies.
Successful charter applicants would also face the added regulatory requirements that come with operating as a special-purpose bank, however, such as maintaining specific levels of capital and liquidity. As a result, the number of fintech firms interested in filing applications may be relatively limited, although the alternatives of navigating a state-by-state approval process or entering into bank partnerships that try to satisfy evolving and nonuniform “true lender” criteria may make an OCC application more attractive to some firms.
The OCC first announced that it would consider fintech charter applications in December 2016, when former Comptroller of the Currency Thomas J. Curry opened the door to the idea of fintech firms operating as special-purpose national banks. In so doing, Curry remarked that such a move was in the public interest because “fintech companies hold great potential to expand financial inclusion,” and added that making such applications optional would allow fintech companies to choose whether to seek a federal or state charter (similar to the choice banks have) or to operate outside of the banking system.
The possibility has met with resistance from some quarters, however. Several state regulators challenged the OCC’s ability to consider such a change, arguing it exceeded the agency’s mandate under the National Banking Act. For example, a court in Manhattan rejected a legal challenge from the New York Department of Financial Services (NYDFS), determining any purported harm was merely “speculative” at that early stage. However, the NYDFS has made it clear that it would seek to revive its challenge if the OCC proceeded to issue fintech charters.
A precise date for an announcement from the OCC is unknown as of this writing. Speaking at a conference in April, Comptroller of the Currency Joseph Otting indicated that the regulator was hoping to release its position in 60 to 90 days — a timeline it has now exceeded, meaning the release could either be imminent or be facing further delays. At the same event, Otting stated the OCC had yet to finalize its position and still welcomed feedback, adding that “if we did allow fintech to be regulated, they would be subject to the same rules and regulations as other banks.”
Meanwhile, the OCC charter decision is just one looming change that could affect the environment in which fintechs will operate going forward. The U.S. Department of the Treasury released a report on July 31 “identifying improvements to the regulatory landscape that will better support nonbank financial institutions,” among other goals. Treasury specifically recommended legislative solutions for the challenges posed by the Madden decision and recent “true lender” decisions (such solutions as including codifying the “valid when made” doctrine and the validity of properly constructed bank partnership programs) and recommended that the OCC move forward with considering special-purpose national bank charters for fintech companies. In addition, several fintech firms are navigating the Federal Deposit Insurance Corp. (FDIC) approval process for forming industrial loan companies, with the FDIC pledging to provide clarity regarding its position on allowing fintech firms to move into traditional banking activities. The result of all of these processes will give fintech firms a better idea of what their options are for navigating the different federal and state regulatory regimes for financial products.
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