- Key insight: A credit card fintech is the first company to apply for a CEBA credit card bank charter from the OCC in two decades.
- Exert quote: "Many in the banking industry are unaware that CEBA charters are still available." Michele Alt, Klaros Group
- Forward look: The OCC has recently committed to turning around charter applications like Mission Lane's within 120 days.
Credit card startup Mission Lane has applied for a limited-purpose credit card bank charter with the Office of the Comptroller of the Currency and for deposit insurance with the Federal Deposit Insurance Corporation.
In the company's application, Mission Lane identified its target market as "an estimated 70 million Americans geographically dispersed across the country who are systematically underserved by traditional financial institutions and have a demonstrated need for affordable access to credit."
The credit fintech charter application is one of many bank charter requests to the OCC in recent months, which span multiple types and sectors of the industry, at a time when federal regulators are issuing charter approvals at an accelerated rate.
Mission Lane plans to establish its bank offices in Richmond, Virginia, according to OCC filings, and will not open any other physical branch locations.
"This is a natural next step in our evolution that will allow us to expand access to credit to more qualified customers and further our mission to provide fair and transparent credit card products to the Americans that traditional financial institutions have historically left behind," a Mission Lane spokesperson told American Banker. "We look forward to working constructively with the OCC and FDIC through this process."
According to the OCC's
In 1987, the Competitive Equality in Banking Act created two types of limited-purpose banks that are exempt from the Bank Holding Company Act: industrial loan charters (ILCs) and credit card banks. Typically, the term "CEBA bank" refers to credit card banks.
"CEBA amended the Bank Holding Company Act to strengthen the separation of banking and commerce while preserving some tailored exceptions, including for banks that limit their activities to credit card operations," FS Vector managing principal Jasper Sneff Nanni told American Banker. "In this way, the CEBA credit card bank can be thought of as a sibling to the more frequently seen and discussed industrial loan company."
Credit card banks, under the CEBA, may engage only in credit card activities and very limited deposit activities. Unlike a full-service bank, which is subject to the regulatory requirements outlined in the BHCA, CEBA banks may not accept demand deposits or any savings or time deposits of less than $100,000 unless they are used as collateral for secured credit card loans. They also may not engage in the business of making commercial loans other than credit card loans made to small businesses.
A CEBA limited-purpose de novo charter would offer benefits in terms of operating model efficiency and control. But it would not necessarily let the company do anything new, according to FS Vector partner Emily Goodman.
"Importantly, with a CEBA charter, Mission Lane would no longer need to rely on partner banks to originate and hold loans," she said. Currently, Mission Lane partners with Transportation Alliance Bank and WebBank as its sponsor banks and with Visa as its card issuer.
"Bringing these functions in-house can improve unit economics and provide greater control over the product and customer experience," Goodman continued. "This type of operating model is often better suited for more mature companies, given the complexity and regulatory requirements involved."
A company with a national CEBA bank charter has several advantages over non-bank credit card operations, according to Klaros Group partner and co-founder Michele Alt. Klaros Group advised Mission Lane on its application.
"Because they are exempt from the BHCA, a CEBA bank's parent company is not subject to supervision by the Federal Reserve," Alt told American Banker. "Their eligibility for FDIC deposit insurance and ability to take at least large deposits provides lower-cost funding than available to a non-bank credit card issuer."
CEBA credit card banks also benefit from federal preemption of state laws that "conflict or significantly interfere" with the exercise of their federally authorized powers, according to Alt. That preemption authority means a CEBA bank is subject only to the OCC's supervision, which is much more efficient than operating under a patchwork of state lending license requirements and supervisors. Additionally, a credit card bank can "export" favorable home state interest rates and apply them to credit card loans made to customers in any state.
"The ability to export favorable interest rates, in particular, drove a surge in CEBA charters following CEBA's enactment," she said. "However, many of these retailers shut down their banks in recent years due to a variety of factors, including rising consumer delinquencies compared with general-purpose credit card delinquencies and CFPB rules restricting late fees."
Today, only a handful of CEBA banks remain in the United States. One is Credit One Bank, which recently paid
"Many in the banking industry are unaware that CEBA charters are still available," Alt said. According to her, Mission Lane's application is the first limited-purpose credit card bank application to the OCC in approximately two decades.
