The Office of the Comptroller of the Currency (OCC) has been regulating national banks since the time of Abraham Lincoln. The head of the OCC, Thomas Curry, has talked about using the authority of his office to create a special purpose fintech charter. Today, at a speech in Washington DC he laid out his plans.
Along with this speech the OCC released a paper titled, Exploring Special Purpose National Bank Charters for Fintech Companies which is available on their website. It goes into some detail about their plans and what they are trying to achieve with this charter. The OCC has requested public comment until January 15 and I am sure they will be inundated with responses.
This new charter goes beyond just lending platforms, it has quite a broad scope. From the white paper:
A special purpose national bank may limit its activities to fiduciary activities or to any other activities within the business of banking. A special purpose national bank that conducts activities other than fiduciary activities must conduct at least one of the following three core banking functions: receiving deposits, paying checks, or lending money.
How the New Fintech Charter Applies to Marketplace Lending
We reached out to Brian Korn, a partner with Manatt, Phelps & Phillips to give his initial thoughts on the new charter. Here are some of these thoughts:
- It must be fully preemptive – states are going to fight this harder than the Reg A tier 2 preemption because it effectively puts the California Department of Business Oversight and the New York Department of Financial Services and other agencies out of business, depending on cost and user friendliness.
- Madden would not apply if the loan is held by a national bank. True lender would not apply either since the fintech firm would itself be a “non-depository bank.”
- There is a short comment period until Jan 15. I expect this gets extended, but don’t see soon-to-be Treasury Secretary Mnuchin fighting this too hard.
- Time to obtain a charter, review requirements and capital requirements are all TBD. If they are too high, fintech will not bite. Fintech will always opt for the regulatory path of least resistance, all other things including enforcement risk being equal.
- Curry notes that federal banking laws apply to banks generally- other than FDIC compliance which exempts from CRA. It would be difficult for most fintech firms to comply with the Reg W affiliate requirements without significant restructuring. Platforms should educate themselves on the burdens of bank compliance prior to jumping in the pool.
He also brought up some interesting questions:
- Is the charter optional? I assume a company can continue to use third party lenders (like our clients at Cross River Bank) or obtain state licenses or do without a license if not required.
- Can they get access to Fed discount window?
- Can they pick a state and use the usury limits of that state?
More will be revealed in coming days as everyone dissects and discusses every word of the OCC document. It will be interesting to see what comes out of the public comments and if there are changes made to the final directive.
I reached out to Nat Hoopes, the Executive Director of the Marketplace Lending Association, to provide the reaction of the leading industry group:
The FinTech Charter proposed today by Comptroller of the Currency Thomas Curry reflects a maturing of the industry. The OCC has clearly recognized the significant positive impact FinTech companies are having on our economy. Whether through a new national charter, bank partnership, or state law portability, clear, consistent standards are essential, and we look forward to working with the OCC and other federal and state regulators on these important issues.
I have an open mind on this issue. I have seen how supportive regulation can be for an industry by the UK experience where special regulation for peer to peer lending has stimulated the industry there. But the big question mark remains if the OCC builds it will the fintech companies come. We don’t know that yet although reading a lot of what has been written today some platforms have expressed an interest in applying for this charter.