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Financial Services Law Insights and Observations

OCC’s March Fintech Guidance Documents Draw Range of Comments, Reactions from Stakeholders

Fintech Agency Rule-Making & Guidance OCC Licensing Comptroller's Licensing Manual


Back in December of last year, the OCC announced its intention to move forward with developing a special purpose national bank charter for financial technology (fintech) companies. In an accompanying white paper the OCC outlined the basis for its authority to grant such charters to fintech companies and potential minimum supervisory standards for successful fintech bank applicants. And, as previously covered by InfoBytes, in March, the OCC released a Draft Licensing Manual Supplement for Evaluating Charter Applications From Financial Technology Companies (“Draft Fintech Supplement”) and a Summary of Comments and Explanatory Statement  (“March 2017 Guidance Summary”) (together, “March 2017 Guidance Documents”) in which it provided additional detail concerning application of its existing licensing standards, regulations, and policies to fintech companies applying for special purpose national bank charters. With the comment period for its March 2017 Guidance Documents closing earlier this month, the bank regulator drew a range of reactions from stakeholders, several of which are described below:

Center for Responsible Lending (CRL). In its comment letter—submitted on behalf of a number of consumer, civil rights, small business, and community groups—the CRL argued, among other things, that “the OCC does not have the legal authority to charter non-depositories,” and “is not a substitute for critical safeguards that exist at the state level,” and that the existence of a national bank charter for non-depository fintech institutions would likely result in the preemption of strong state laws. The signers expressed concern that, in its approval process, the OCC “has completely failed to address critical consumer and small business protection requirements.” The letter adds that the chartering process, as it now exists, “seems more designed to pick winners and losers and grant special privileges to established players in the industry than to facilitate innovation.”

Mercatus Center at George Mason University (Mercatus Center). In its comment letter, the Mercatus Center set forth its position and belief that the OCC’s current proposal “shows some improvement over its previous statements,” but “remains overly focused on the survival of the entity instead of the protection of customers.” According to Brian R. Knight, a Senior Research Fellow at the Mercatus Center, the proposal imposes requirements and conditions on special purpose national banks (SPNBs) “that many will find impossible to meet—without a sufficient countervailing benefit.” Knight recommends therefore, that the OCC, among other things: (i) reorient charter requirements away from insisting that SPNBs demonstrate survivability and toward ensuring that they can fail in an orderly manner that protects their customers; and (ii) clarify the requirements for SPNBs to obtain and maintain a charter consistent with the rights and responsibilities of national banks under relevant law.

Consumer Bankers Association (CBA). In an April 14 comment letter, the CBA argued that the OCC "has not provided a clear rationale or justification for offering a national bank charter to fintech companies,” and that the standards for such banks are not yet fully developed.” The group urged the OCC to conduct an in-depth study of the fintech sector to determine whether or not the public would benefit from a fintech charter.

Independent Community Bankers of America (ICBA). As previously covered by InfoBytes, the ICBA has been a vocal opponent of the OCC’s fintech charter efforts throughout the agency’s nearly yearlong process. Reiterating concerns raised in its January 17 comment letter, the ICBA submitted another comment letter on April 12, calling upon the OCC to rescind the proposed licensing manual supplement and request specific congressional authorization to grant fintech charters. Specifically, the ICBA asserted the need to spell out clearly the supervision and regulation that these chartered institutions and their parent companies would be subject to. The ICBA noted its observation that federal agencies “are inconsistent on how they define a ‘bank’ or what constitutes the ‘business of banking,’” and argued the benefits of giving Congress the “opportunity to define the business of banking and consider all the policy implications of issuing a fintech charter.” In particular, the ICBA insisted that the OCC publish liquidity and capital requirements for fintech firms that would be the same as those applied to depository institutions. The ICBA also issued a statement concerning a lawsuit filed April 26 by the Conference of State Bank Supervisors CSBS against the OCC (see related InfoBytes Special Alert), in which the organization “commend[ed] the CSBS for elevating this issue and remains deeply concerned with the OCC’s proposed fintech charter, which the agency has pursued without congressional authorization or a formal rulemaking process subject to public comment.”

American Bankers Association. In an April 14 letter, the ABA expressed its support for the OCC’s proposed charter, so long as “the same rules and oversight are applied consistent with those for any national bank.” The ABA emphasized, among other things, the benefit of a bank charter as a “clear signal to customers that they are dealing with a trusted partner,” as “[t]he title of ‘bank’ carries significant weight in the mind of customers and should not be taken lightly.”

Marketplace Lending Association (MLA). In its April 13 comment letter, the MLA called for the OCC to “consider developing metrics that are different from those used for traditional depository institutions.” Specifically, the MLA argues, “[i]instead of applying rigid capital and liquidity requirements across the board, the OCC should consider implementing requirements that are based on basic prudent operations, long-term profitability, and risk factors that would apply” to fintech firms with different business plans or structures.

Financial Innovation Now (FIN). Finally, in a letter sent earlier this month to the Senate Banking Committee (FIN)—an “alliance of leading innovators promoting policies that empower technology to make financial services more accessible, safe and affordable for everyone”—offered several policy recommendations in response to the legislators’ request for proposals to grow the economy. Among the recommendations offered, was a call for a “Financial Innovation National Strategy” to foster innovation, job creation, and competition in the financial services sector. As part of that strategy, the FIN letter outlines six policy proposals: (i) statutory designation of an Undersecretary of Treasury for Technology; (ii) federal money transmitter laws; (iii) payment technology assessments under the Card Act; (iv) consumer data access protections; (v) better federal regulatory coordination; and (vi) flexible approaches to new tech entrants.

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