Does the OCC really have the power to charter fintech firms?
WASHINGTON — The Office of the Comptroller of the Currency is moving too far and too fast in its push to offer a fintech charter, overlooking skepticism that it lacks sufficient legal authority, according to a growing coalition of critics.
Critics have already sounded off on the OCC's plan to offer fintech firms a federal chartering option, arguing that oversight is better left to the states. But state regulators and Senate Democrats also question whether the OCC has the authority to create the new charter regime without a clearer congressional mandate.
"The OCC says that it has broad authority in this area, but the actual wording and the intent of the National Bank Act is very clear about what the OCC can and cannot do in terms of its chartering," said Margaret Liu, the senior vice president and deputy general counsel at the Conference of State Bank Supervisors. "They can't just unilaterally create a special purpose charter. Only Congress has the power to grant this kind of authority, and it hasn't."
In a letter last week to Comproller Thomas Curry, Sens. Sherrod Brown, D-Ohio, and Jeff Merkley, D-Ore., also doubted the OCC's legal powers to issue the charter.
"It is far from clear whether the OCC has authority to grant national bank charters to [fintech companies]," they wrote. "Congress has given the OCC a very narrowly-defined authority to charter only three specific types of special-purpose national banks … that do not accept deposits," they added, citing bankers' banks, credit card banks, and trust banks.
State regulators and some in the industry have also cited concern about how the OCC announced its fintech charter policy. The agency put out a framework and invited public comments on it, but it still lacked a formal notice and rulemaking.
"The comptroller is moving by doing this by policy," said Ray Grace, the North Carolina commissioner of banks. "I still have serious concerns about how to squeeze fintech models into a bank charter."
Some in the industry worry that Curry is rushing the process in order to finalize the charter before his term expires in April. (He could still stay on in the job until a successor is confirmed.)
"Curry's rush to the exit getting all these things done before he's out the door is making for bad public policy," said one industry source, speaking on condition of anonymity. "It is clear that the pace at which Curry is pushing this initiative signals that he intends to issue a fintech charter before his time as Comptroller expires."
Yet agency officials say they are not moving too quickly.
An OCC spokesperson said Curry's term has "not been a factor in the timing of the OCC's work on responsible innovation" and the fintech charter.
"Rather than rushing, the OCC has in fact proceeded deliberately and transparently for nearly 18 months on … seeking public comment each step of the way," the spokesperson said.
The OCC says it has not begun receiving applications yet.
"[We] will not accept applications until we have considered comment on our paper, published our policy statement, and are confident we can effectively supervise the companies that meet our high standards and are granted national bank charters," said OCC Chief Counsel Amy Friend in a statement to American Banker.
The OCC has also said it would supplement its general handbook on the chartering process with a document outlining specific requirements for fintech companies. (The public comment period on the OCC's December fintech charter blueprint ended on Sunday.)
"The OCC intends to apply the same standards to fintech-firm applicants as we would to any other applicant for a national bank charter," Friend said in the statement. "However, because the business models of fintech firms may be novel or different compared with those of applicants for a full-service bank charter, the OCC plans to publish a policy statement regarding the chartering of fintech companies."
Other experts say the OCC is on firm legal footing, arguing that the OCC's power to grant limited-purpose charters is well-established and bolstered by precedents.
"They're on fairly solid legal ground with respect to their authority to issue special purpose charters," said James Sivon, who is of counsel at Squire Patton Boggs. "They've done it on other occasions, [including] for credit card banks and special trust banks."
In addition, others argue, the agency has broad maneuvering space that allows it to operate without immediate congressional input.
"The OCC cannot be required to implement its existing laws based on speculation about what Congress might or might not enact," said John Beaty, a partner at Venable.
The OCC first expressed an interest in creating a fintech charter with a white paper published in March, and then in September the agency created an "Office of Innovation." The subsequent white paper published in December laid out the types of requirements the OCC would impose on fintech firms seeking the charter.
Yet Sivon said that, since the OCC is establishing its fintech policy without a formal rulemaking, this leaves the policy vulnerable to being substantially revised by future officials.
"The next Comptroller obviously can decide whether he or she can proceed with this so there is a lot of space [for interpretation] right there," he said.
Others worry that the chartering process will give little opportunity for the comprehensive comment-and-answer process that is characteristic of federal rulemaking. The agency's consideration of charters could touch on the extent to which OCC-approved fintech firms would be able to preempt state laws.
"Curry is going to be answering these questions on an ad-hoc, case-by-case basis behind closed doors," said the industry source.
To be sure, the chartering process is not entirely opaque. It is subject to public comment, and requires parts of a company's business plan to be made public.
Still, there are concerns that once companies obtain a charter, they could turn around and discreetly change their business model.
"If they want to change their business plan, from my understanding, it's subject to approval by the OCC as opposed to having public feedback," said Michelle Sternthal, a spokeswoman for the Main Street Alliance, one of 49 organizations that signed a statement opposing the charter when it was first announced in December.