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Talking Fintech Regulation at the 4th Annual Online Lending Policy Summit

Highlights from the fourth annual Online Lending Policy Summit held in Washington DC last week

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Congressman Bill Foster, interviewed by John Kromer of Buckley LLP, kicks off the Online Lending Policy Summit

I was in Washington DC last week for the fourth annual Online Lending Policy Summit. This one day event is put on by the Online Lending Policy Institute (OLPI) where regulators, lawmakers and the industry come together to discuss regulatory frameworks and responsible innovation.

The day of the Summit also happened to coincide with the day that Mark Zuckerberg was testifying before the House Financial Services Committee. There were several Congressmen who spoke who are on that committee, so Facebook’s move into financial services, specifically their Libra initiative, became one of the themes discussed throughout the day.

They kicked off the event with Congressman Bill Foster (D-IL) who is Chairman of the House Artificial Intelligence Task Force as well as a member of the House Financial Services Committee. He also happens to be the only member in Congress with a PhD in physics. He believes that AI is going to disrupt financial services as much as other parts of the economy and many jobs will be impacted. He also stressed that it is important to be able to explain any AI decision impacting consumers in a simple manner. One interesting comment he made was about the state of the US government today, it has not been structured for a world where technology is the largest industry. When it comes to interest rate caps he believes that this should be a data driven decision. If the cap cuts too deep it could harm consumers. He will be paying close attention to what California is doing in this area.

The energetic Congressman Trey Hollingsworth (R-IN) talked about the divide between urban and rural areas and how fintech innovation, particularly online lending platforms, can help to bridge the divide. As branches for banks and credit unions close rural Americans often feel that they cannot participate in the same economy as urban Americans. His north star is to ensure that rural Americans have access to today’s financial system. He also said it is important for regulators to be harnessing the latest technology and that regulatory uncertainty has the potential to delay innovation in the long run to the detriment of the US economy. He closed by telling the audience that he is a big fan of the important work we are doing in fintech. Then he was off to question Zuckerberg. [Read more…]

Talking Regulation at the Online Lending Policy Summit

Regulators, lawmakers and leaders in the online lending industry come together in Washington for the third annual Online Lending Policy Summit

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Craig Phillips, Counselor to the Secretary of the US Treasury

Last week I was in Washington DC to attend the third annual Online Lending Policy Summit. This is the annual get together in Washington of the Online Lending Policy Institute where regulators, lawmakers and the industry come together to discuss regulatory frameworks and responsible innovation.

The big topic of the day was the OCC’s Special Purpose National Bank Charter also known as the Fintech Charter. The topic was laid out for the audience by the first keynote speaker, Grovetta Gardineer, the Senior Deputy Comptroller for Compliance and Community Affairs at the OCC. She talked about the history of the OCC going back to 1863, with the National Banking Act, when the dollar supplanted state currencies as the sole currency of the United States, a revolutionary idea back then. Ms. Gardineer reaffirmed the authority of the OCC to introduce a national fintech charter and talked about how companies should proceed if they are interested. While she would not comment on specifics she did say that the OCC is currently having preliminary conversations with fintech companies but no formal application has been received yet.

The new head of the CFPB’s Office of Innovation, Paul Watkins, talked about the importance of the regulatory sandbox concept. He was one of the architects of the Arizona fintech sandbox and he is bringing that knowledge with him to Washington. He talked about the two main tools to help facilitate innovation at the CFPB: their trial disclosure program and the no action letter. The only recipient so far of a CFPB no action letter was Upstart so it was fitting that Alison Nicoll, General Counsel at Upstart, came on stage to direct the Q&A after Mr. Watkins presentation. He said he would like to see increased cooperation between states and the federal government when it comes to sandboxes. He also said it is very rare to see fraud occur within a sandbox as fraudsters tend not to want to enter a collaborative relationship with a regulator.

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OCC Announces Fintech Charter on the Heels of US Treasury’s Report on Fintech

It was a busy day in Washington as the OCC and the US Treasury both make announcements that will impact the future of fintech

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The OCC Fintech Charter was formally proposed back in December 2016. Along with many other organizations we responded to their proposal in January of last year. Then a couple of months later the OCC released details on what the fintech charter might entail. Since then not much has happened. Until today.

Of course, the OCC went through a leadership transition with the new administration as former Comptroller of the Currency, Thomas Curry, ended his term in May, 2017. The OCC had a temporary leader, Keith Noreika, for six months until the current Comptroller, Joseph Otting, was sworn in. That was back in November and now eight months later the OCC has finally announced that they will begin accepting applications from fintech companies for this special purpose national bank charter. Here is what Comptroller Otting said about their new charter (from the press release):

The federal banking system must continue to evolve and embrace innovation to meet the changing customer needs and serve as a source of strength for the nation’s economy. The decision to consider applications for special purpose national bank charters from innovative companies helps provide more choices to consumers and businesses, and creates greater opportunity for companies that want to provide banking services in America.

Nat Hoopes, Executive Director of the Marketplace Lending Association, had this to say about the new charter (from Twitter): [Read more…]

The OCC Publishes Details on the Fintech Charter

The OCC, the regulator for national banks, released details of their long awaited Fintech Charter today in a 16-page supplement.

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Today, the Office of the Comptroller of the Currency (OCC) released their long-awaited supplement on the new Fintech Charter. They officially announced the new charter back in December and began a 45-day open comment period. They received over 100 comments and addressed many of these comments in this supplement.

The 16-page draft licensing supplement provides more details on the new Fintech Charter and is expected to be a supplement to the existing OCC licensing manual. They addressed issues such as capital requirements, liquidity, financial inclusion plans, consumer protection and the application process.

First and foremost the OCC Fintech Charter is about encouraging innovation in finance. The OCC discussed that directly in the supplement:

The OCC has long supported innovation in the national banking system. Federally chartered institutions have continually sought new approaches to meet the needs of customers and an evolving marketplace. It has been and remains the OCC’s role to encourage and support institutions’ efforts to engage in responsible innovation to meet the needs of consumers, businesses, and communities. The OCC’s decision to issue the draft Supplement is consistent with that support. It is also one component of an initiative that began in 2015, when Comptroller of the Currency Thomas J. Curry announced the agency’s efforts to better understand innovation occurring in the financial services industry and to develop a framework to support responsible innovation in the federal banking system.

The Fintech Charter has received a mixed reception on Capitol Hill to say the least. The House Financial Services Committee sent a letter to Comptroller Curry last week warning him to not proceed with haste in pushing this new charter through before his term expires on April 9. The timing is interesting because they also announced today a new comment period on this supplement which is open until April 14. President Trump has not nominated a new Comptroller yet and Thomas Curry can serve until his replacement is confirmed. Of course, we have no idea if the new Comptroller will be a supporter of this Fintech Charter or not. [Read more…]

The Lend Academy/LendIt Response to the OCC

The full text of the Lend Academy/LendIt response to the request for comments on the OCC fintech charter

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Back in early December the OCC announced their intention to create a national Fintech Charter. At the time they announced a request for public comments until January 15. Lend Academy and LendIt sent in a combined response before the deadline and it is reproduced below. You can also read it in PDF format here.

Dear Comptroller Curry:

On behalf of LendIt Conference LLC and Lend Academy LLC, I am writing in response to your request for comment on the proposed special purpose Fintech Charter.

First some background. My name is Peter Renton and I have been active in the Fintech industry since 2009. I began as an individual investor on Lending Club and Prosper, the two leading peer to peer lending platforms. I started Lend Academy, a media site dedicated to the broader online lending industry, because I believed in the potential of the industry to bring change to financial services.

I started LendIt with my co-founders back in 2013 because there was no event yet dedicated to the online lending industry. Together, we felt that the industry needed a place to come together to network and discuss the latest innovations. LendIt was the first and is the largest event in the online lending space today.

A More Efficient Financial System

As someone without a background in finance what struck me when I began learning about this industry was how inefficient it was. With 50 states, many of which have their own licensing, fee and interest rate requirements, there was no way for an online platform to operate in a uniform manner. Despite that many platforms have been able to get some traction albeit in a less than ideal way.

I would like to draw your attention to a study done in 2014 by Thomas Philippon of the Stern School of Business at NYU. When I read this paper I was staggered by the fact that the unit cost of financial intermediation has not improved much at all over the last 100 years. With all the advances in technology I would have thought that financial intermediation would have become many times more efficient during this time.

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Marketplace Lending Predictions for 2017

My annual gaze into the crystal ball brings you seven predictions for 2017 as well as a review of my last year's predictions.

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Crystal ball - 2016 predictions

Happy New Year everyone. As I do every year at this time I make a few predictions for the year ahead as well as review my previous years predictions.

Review of my 2016 Predictions

As we know 2016 turned out in a way that was completely unexpected. Regardless, I will go through what I thought would happen in 2016 – some things I got right and with others I was way off.

  1. Lending Club will launch an auto lending operation this year
    Despite the challenges at Lending Club in 2016 I did get this one right. They launched a new auto lending operation in October in their first new product expansion in more than two years.
  2. Consolidation will begin
    I was not really right with this one. While consolidation did begin somewhat in 2016 my suggestion of three platforms buying acquired by larger competitors did not really come true. We saw several platforms go out of business but only one or two minor acquisitions.
  3. There will be five IPOs in our industry in 2016
    I was embarrassingly wrong on this one. I expected the IPO market to rebound in 2016 and several of the large platforms to take advantage of the public markets. I was completely wrong with zero IPOs in our industry in 2016.
  4. Three large banks will build platforms
    I was pretty much right on this one. We had Goldman Sachs launch their Marcus platform in 2016 and we also saw Wells Fargo launch their Fastflex product for online small business lending. While outside the US, German banking giant Commerzbank launched their own online lending platform.
  5. A Chinese company will buy a U.S. marketplace lending platform
    This did not happen in 2016 although interest in the US marketplace lending industry in China has never been stronger. I think I was probably a couple of years early on this prediction.
  6. The retail investor will become more in favor in 2016
    The retail investor certainly became more in favor this past year. There were some new Reg A+ deals announced and Lending Club made several moves aimed at increasing retail investor volume including the one just last month providing bonuses for new IRA investment.
  7. A new trade association will finally launch
    This was an easy one to predict as many of the leading companies have been talking about it for some time. The Marketplace Lending Association launched in April and we had several other initiatives launch as well.

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New Fintech Charter Proposed by the OCC

After months of speculation the OCC lays out their plans for a new national fintech charter in a paper released today.

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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: [Read more…]

ABOUT LENDIT FINTECH NEWS

LendIt Fintech News, Powered by Lend Academy, has been bringing you all the news and information about fintech and online lending since 2010 when it was founded by Peter Renton. We not only have the industry’s most active news site, but also the largest investor forum and the first and most popular podcast.

We are a team of fintech enthusiasts who have been covering the industry for many years. With a deep knowledge of online lending, digital banking, blockchain, artificial intelligence and more our team covers the daily news and writes in-depth editorials.

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