The US regulatory body for state banking has filed a lawsuit against the federal government for granting bank charters to fintech companies. The complaint calls into question the leniency of fintech “sandbox” charters.
The Office of the Comptroller of the Currency (OCC), an arm of the US Department of the Treasury, has awarded these special charters to many blockchain- and cryptocurrency-centric companies. The body states that the suit is an effort to protect consumers from “predatory actors.” Though the CSBS doesn’t say so, these types of charters cut into traditional banks’ bottom line and potentially attract new customers away.
“Common sense and the law tell us that a nonbank is not a bank. Thus, CSBS is calling on the courts to stop the unlawful, unwarranted expansion of powers by the OCC,” John Ryan, CSBS president and CEO, said.
Making a level playing field or strong-arming competition?
The CSBS has attacked the charter since the US Treasury first proposed it in December 2016. Additionally, the CSBS filed a suit over the proposed draft for guidelines for fintech charts in April, as CCN reported. The latest suit filed today follows on the heels that the OCC announced that they would be accepting fintech charter applications in July under the new special guidelines.
Ryan invokes dramatic parallels to the crises that were spurred by predatory banking and lending:
“Lest we forget, in the early 2000s the OCC enabled national banks to ignore state predatory lending laws, a move that contributed to the U.S. financial crisis and the largest number of home foreclosures since the Great Depression. History cannot be allowed to repeat itself.”
However, beneath this, it is clear that CSBS feels that the playing field is no longer level with the special charter. On the same token, however, entrenched corporations have a long history of using regulations to keep new players out, especially when it comes to disruptive technologies like blockchain. Blockchain technology has the potential to remove a lot of revenue from fees that banks extract from customers, especially when it comes to international payments. Large banks themselves still engage in predatory lending despite catastrophic market events like the dotcom bubble and the Great Recession, as the OCC’s own filings show.
Still, digital assets present a problem for regulators since they have a variety of uses that straddle many different categories. However, the OCC doesn’t seem to be slowing down its stance to welcome fintech banking applications. Coinbase, for instance, received approval to operate as an”Independent Qualified Custodian.” It appears more likely that the OCC is on pace to approving more applications, rather than withdrawing from them. From the drafting of guidelines to public comment to accepting new applications, the charter approvals are the final culmination of a push to grant fintech companies a role in banking.
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