Opinions Vary Greatly About the OCC’s Proposed Fintech Bank Charter

The Electronic Transactions Association went on record Tuesday supporting the Office of the Comptroller of the Currency’s proposed limited-purpose national bank charter for financial technology companies, but a national trade group of small banks “expressed strong concerns” about the idea.

The opinions expressed by the ETA and the Independent Community Bankers of America were among the many that the OCC, a unit of the U.S. Department of the Treasury that regulates national banks, submitted by the OCC’s Jan. 17 deadline for taking comments. Comptroller of the Currency Thomas J. Curry proposed the new charter last month, saying fintech banks could bring more banking services to underserved consumers while spurring innovation and bringing regulatory oversight to new companies operating in the financial-services sphere.

In its eight-page comment letter, the Washington, D.C.-based ETA, the national payments-industry trade group, said it “encourages the OCC to take a flexible, business-case specific, approach to reviewing charter applications, including assessment of the types of products and services that involve banking functions.” Regulators should not only account for the differences between traditional banks and fintech companies, but they also should be aware of the variations in business models within the fintech community, the ETA said.

Fintech banks won’t provide the same scope of services as traditional banks, and therefore will not present the same degree of risk, the ETA said. “It is critical for the OCC to approach this process with the understanding that applicants are not traditional banks, and should not, be held to all of the same expectations and requirements currently in place for traditional banks, specifically capital and liquidity requirements intended for deposit-taking institutions,” the ETA’s letter said.

The Washington-based ICBA, however, said that while it “strongly supports responsible innovation” and welcomes Curry’s creation of a new Office of Innovation within the OCC, it “has strong concerns about issuing special-purpose national bank charters to fintech companies without spelling out clearly the supervision and regulation that these chartered institutions and their parent companies would be subject to.”

The ICBA wants the OCC to propose rules spelling out its examination and supervision expectations and other regulatory requirements, consult with other banking regulators, and ensure that large commercial entities are not allowed to own special-purpose national banks as subsidiaries, which the ICBA said “would create conflicts of interest and extend the federal safety net to commercial interests.”

The association also said the OCC should clearly define just what is a “fintech” company and who would be eligible for such a charter, and ensure that any new chartered institution is subject to the same supervision and regulation required of community banks.

Other critics have said fintech charters could make it easier for questionable online lenders to fleece consumers, and some have questioned whether the OCC even has the legal authority to issue such a charter. The New York State Department of Financial Services called the fintech-charter idea “highly problematic” and an attempt to usurp state banking laws, according to Reuters. A proposed charter would “invite serious risk of regulatory confusion” and stifle small-business innovation, the department said.