Keith Noreika, the Acting Comptroller of the Currency, updated an audience at the Exchequer Club in Washington, D.C. on the Office of the Comptroller of the Currency’s (OCC) work related to granting national bank charters to financial technology companies. He noted in his prepared remarks that the agency’s Office of Innovation was established in January to ensure institutions with federal charters have a regulatory framework receptive to innovation.
The New York Department of Financial Services brought the issue to the forefront a week into Noreika’s tenure by naming him as a defendant in its lawsuit challenging the OCC’s authority to grant special purpose national bank charters to fintech companies engaged in banking and requiring they meet high standards for receiving a charter. Noreika noted early in his remarks that the OCC is still fighting that lawsuit and a similar one by the Conference of State Bank Supervisors.
He said the OCC was established to administer a federal system that includes granting charters to companies engaged in banking. He said it is important not to define banking too narrowly, since it would prevent the system from evolving properly.
Companies that offer banking products and services should be permitted to apply for national bank charters so they can pursue business on a national scale if they meet the necessary criteria, he said. Providing them a path to become national banks is pro-growth.
The option of having a national charter is one choice banking companies should have, along with becoming a state bank or a state-licensed financial services provider.
Today, hundreds of fintechs compete with banks without the oversight facing national banks and federal savings associations, Noreika said. Those who believe granting national bank charters to fintechs brings a disadvantage to banks are mistaken, he said.
“The status quo disadvantages banks in many ways,” he said.
Charters provide great value to companies, he noted, but the supervision that accompanies it helps level the playing field.
OCC made it clear in a December paper that fintech companies receiving a federal charter would be supervised like national banks, Noreika said. This includes capital and liquidity standards, regular examination, and when appropriate, reflects an expectation of financial inclusion. The OCC clarified eligibility for receiving a special purpose national bank charter in 2003 in a regulation, 12 CFR
The OCC’s approach to innovation brings technology oriented financial firms that offer banking services into the regulatory scheme, ensuring their safety, and benefits the banking system and its customers.
Opposition to granting the charters on consumer protection grounds ignores changes of the last decade, Noreika said. Congress expanded consumer protections under Title X of the Dodd-Frank Act, which clarified the scope of the OCC’s application of preemption by providing the standard that governs the applicability of state consumer financial laws to national banks.
State laws addressing taxation, zoning, fair lending, anti-discrimination and torts still apply to national banks and would also apply to fintech firms that become national banks.
There are other consumer protection laws that apply to national banks, he said, such as the Federal Trade Commission Act that outlaws unfair or deceptive practices.
The OCC has fought for many years to eliminate deceptive and unfair lending practices in the federal banking system, Noreika said. Where large scale, short term consumer lending abuse occurs today, it is through state regulated companies and not national banks.
He said the OCC does have the authority to grant national bank charters to financial technology firms that don’t take deposits.
The OCC has not determined whether it will act upon applications from non-depository fintech companies for special purpose national bank charters, he noted, and has not yet received any such applications. The OCC will continue to evaluate its options.
Companies can seek a national bank charter using other authority, in addition to other special purpose national banks, like banker’s banks, trust banks and CEBA credit card banks. The OCC has the authority to charter these entities as well. While the OCC has no plan to use section 5.20 to charter an uninsured special purpose fintech national bank, other chartering options exist for the OCC and fintech business models to reach the same result.
“We should take every opportunity to reduce unnecessary regulatory burden, promote economic growth and eliminate barriers to becoming part of our banking system, so long as we ensure that the system operates in a safe manner, provides fair access, treats customers fairly and complies with applicable laws and regulations,” he said.
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