Letter: State Supervisors Oppose the OCC Fintech Charter

CSBS and state regulators sent a letter in November outlining their disapproval of the OCC’s plans to charter nondepository fintechs.

The top concerns of the letter:

OCC actions would distort the marketplace.

A federal fintech charter would centralize authority for perhaps all non-depository activities within a single regulator.

“Put simply, the creation of a federal charter for fintech or other non-banking companies would put the OCC in a position of picking winners and losers…to the general detriment of customers and innovative financial service providers.”

The OCC has a history of preempting state consumer protection laws.

During the early 2000s, many states adopted laws and brought enforcement actions to stop predatory lending.

“Nevertheless,” CSBS explained, “the OCC promptly preempted the application of state anti-predatory lending laws to national banks and their operating subsidiaries, thereby permitting unsafe and abusive lending practices to flourish in the lead up to the [U.S.] financial crisis.”

It later required congressional action to reset the balance between state and federal regulation in consumer protection.

The OCC lacks statutory authority.

The OCC exceeds its mandate by claiming authority to create a charter for fintech firms that only perform non-depository functions, such as lending or paying checks.

“As several provisions of the [National Bank Act] make clear, the OCC may not issue a general purpose national bank charter to an institution unless that institution intends to engage in the ‘business of banking,’ including deposit taking,” CSBS wrote.

Further, the special purpose charter envisioned by the OCC would represent “a type of charter without precedent in the national banking system.”

State regulation enables innovators.

States support innovation through a choice in regulatory regimes and “a state-based licensing structure (which) benefits financial service providers by precluding large, entrenched incumbents from capturing the licensing process so as to exclude new, innovative entrants.”

More broadly, “CSBS and its members recognize the value flowing from the intersection of innovation and financial services – value that enables existing and new companies to potentially better serve their customers. This convergence also presents risks – risks for customers and for the larger marketplace.”

State regulators, who oversee three-fourths of all U.S. banks and a wide range of non-depositories, are in the best position to balance and manage these outcomes, because they have a unique mandate — ensuring safety and soundness, consumer protection, and local economic health – which requires them to do so.