The Office of the Comptroller of the Currency received several negative comment letters on the proposed supplement to its Licensing Manual addressing the granting of special purpose national bank charters to financial technology companies. The proposed supplement, which follows the OCC’s publication of guiding principles and a discussion paper, details how a fintech company’s compliance with safety and soundness and fairness standards will be determined.
Chartering authority doubted. In its letter representing a number of consumer, civil rights, small business, and community groups, the Center for Responsible Lending argued that "the OCC does not have the legal authority to charter nondepositories." The letter also stated that a national bank charter for non-depository fintech institutions would harm consumers through the preemption of strong state laws. The signors 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."
Consumer protections needed. Although the Mercatus Center at George Mason University believes that the OCC’s current proposal "shows some improvement over its previous statements, it remains overly focused on the survival of the entity instead of the protection of customers." According to Brian R. Knight, 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 that the OCC: 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 clarify the requirements for SPNBs to obtain and maintain a charter consistent with the rights and responsibilities of national banks under relevant law.
More study required. Finally, the Consumer Bankers Association contends that the OCC "has not provided a clear rationale or justification for offering a national bank charter to fintech companies, and the standards and conditions for granting these charters have yet to be fully developed." It urges the OCC to conduct an in-depth study of the fintech sector. After such study, if the OCC still concludes that the public would benefit from a fintech charter, the CBA says it will ask the agency to issue a formal charter proposal for public notice and comment.For more information about the regulation of financial technology companies, subscribe to the Banking and Finance Law Daily.