On July 31, 2018, the Office of the Comptroller of the Currency (“OCC”) announced its decision to begin accepting applications for special purpose national bank charters from financial technology companies (“fintechs”) that are engaged in the business of banking but do not take deposits. The OCC’s decision comes nearly two years after the agency initially unveiled the proposal in December of 2016.
In connection with its announcement, the OCC released a new supplement to the Comptroller’s Licensing Manual and a policy statement on fintechs’ eligibility to apply for national bank charters. The OCC will apply the same chartering standards it does with respect to any proposed national bank and, in addition, will impose conditions that are tailored to the special nature of fintechs and individual applicants. Notably, the releases emphasize that the OCC will expect a fintech that receives a national bank charter to demonstrate a “commitment to financial inclusion” similar to the requirements that the Community Reinvestment Act imposes on insured depository institutions.
A fintech seeking a special purpose national bank charter also must, among other obligations:
- Comply with capital and liquidity requirements commensurate with its size and the complexity of its proposed activities;
- Develop a contingency plan to remain viable under significant financial stress; and
- Be prepared to pay assessments imposed by the OCC that will take into account the fintech’s assets and activities.
These special purpose national banks will be subject to the same supervision and safety and soundness standards as similarly situated national banks, including the heightened scrutiny paid to de novo institutions.
The OCC’s decision to accept charter applications from fintechs was welcomed by the U.S. Treasury Department. On the same day as the OCC’s announcement, the Treasury Department issued a report that explicitly supported the OCC’s fintech charter proposal as a potentially effective means of “reducing regulatory fragmentation and growing markets by supporting beneficial business models.”
The concept of a Federal bank charter for fintechs, however, is not without its critics. As noted previously on this blog, the Conference of State Bank Supervisors (“CSBS”), the trade association for state bank regulators, and the Superintendent of the New York State Department of Financial Services (“DFS”), each sued the OCC to prevent the agency from issuing charters to fintechs. The CSBS’s and DFS’s lawsuits argued that such charters would, among other things, exceed the OCC’s statutory authority and run afoul of the Tenth Amendment to the U.S. Constitution. Both lawsuits were dismissed on ripeness grounds prior to the OCC’s announcement last week.
Not surprisingly, the CSBS and DFS promptly issued statements attacking the OCC’s decision and did not mince words about their opposition. CSBS President and CEO John Ryan denounced an OCC fintech charter as “a regulatory train wreck in the making,” and DFS Superintendent Maria Vullo decried the charter as being both unauthorized and “entirely unjustified.”
The next chapter in this saga will begin when (and if) the OCC actually accepts a charter application from a fintech for consideration, an action which may lead state regulators to decide to renew their litigation.
