WASHINGTON — Two influential Democratic senators' surprise objections to the Office of the Comptroller of the Currency's fintech charter is a sign that the initiative may be more politically fraught than the industry and agency expected.

In a letter to Comptroller Thomas Curry, Sens. Sherrod Brown, D-Ohio, and Jeff Merkley, D-Ore., attacked the proposed charter on multiple fronts, suggesting the agency didn't have the authority to offer such a charter while simultaneously claiming it could undermine financial stability.

Their comments echoed the complaints of state banking regulators, who worry that the charter would allow nationally chartered fintech companies to evade state consumer protection laws.

"We share the senators' concerns," said Margaret Liu, the senior vice-president and deputy general counsel at the Conference of State Bank Supervisors. The charter "will stifle innovation by arbitrarily picking winners and losers, once again preempt state consumer protection laws, and expose the taxpayer to further risk."

But industry representatives and observers said it was unclear whether the letter, sent a few days before the OCC closes its public comment period, will succeed in hindering the charter's progress. The agency has already made it clear that it would impose high regulatory standards on fintechs that obtain the charter. That could theoretically address some of the lawmakers' concerns.

"Congress has given the OCC a very narrowly-defined authority to charter only three specific types of special-purpose national banks," wrote Sens. Jeff Merkley, D-Ore. (pictured) and Sherrod Brown, D-Ohio. Bloomberg News

"If you take away the rhetoric, a lot of the principles are principles that the industry supports," said Kirtan Mehta, the American Bankers Association's senior vice-president for Congressional relations.

In their letter, Brown and Merkley accused the OCC's plan of endangering financial inclusion and consumer protection rights, even raising the specter of payday lenders as potential beneficiaries of the charter. But OCC Chief Counsel Amy Friend signaled to American Banker in a Q&A last month that would not be permitted.

"The national banking charter does not dictate business models, but to be clear, the OCC took steps in the early 2000s to eliminate abusive practices common to payday lenders at the time," she said. "The agency has no intention of allowing these abusive practices to return."

Observers said the OCC will subject fintech firms to high standards.

"The letter … presumes this is going to operate from the seat of the pants," said Oliver Ireland, a partner at Morrison & Foerster. He added that the senators seem to think that charter holders would not go through "the kind of rigorous OCC exam and supervision process that national banks have historically gone through."

Kevin Petrasic, a partner at White & Case added that "the OCC painstakingly tried to highlight that what they were trying to get at was financial inclusion and to try and make more opportunities for folks were unbanked and underbanked."

The OCC has said it would strive to place a high bar on consumer protections through the chartering process.

But the lawmakers also accused the OCC of lacking Congressional authority to implement this new charter.

"Congress has given the OCC a very narrowly-defined authority to charter only three specific types of special-purpose national banks (bankers' banks, credit card banks, and trust banks) that do not accept deposits," the senators wrote Monday.

This charge is not new. In a November letter, the CSBS lodged similar criticisms, accusing the OCC of not having the authority under the National Bank Act to grant a new type of limited-purpose bank charter.

But lawyers said the issue was not clear-cut among lawmakers.

"I don't think this statement is likely to deter the OCC from moving forward," said John Beaty, a partner at Venable. "The OCC cannot be required to implement its existing laws based on speculation about what Congress might or might not enact."

Brown and Merkley also brought up long-held policy views in their letter — including the protection of the divisions between banking and commerce.

Brown, the top Democrat on the Senate Banking Committee, had in the past expressed similar concerns in relation to the involvement of financial institutions in the physical commodities and energy markets.

In their letter opposing the fintech charter, the lawmakers accused technology companies of wanting to end this separation in order to speed up innovation in the payments industry.

"Technology firms have specifically cited undermining the separation of banking and commerce as reason to support the OCC's charter plan," said Brown and Merkley.

Ireland said the letter might signal more scrutiny for the OCC down the road.

"It does elevate the issue politically," said Ireland. "Will somebody try and hold hearings on it and examine [the charter] under a microscope? Probably so."

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Lalita Clozel

Lalita Clozel covers fintech regulation, anti-money-laundering, cybersecurity and the Federal Deposit Insurance Corp. in American Banker's Washington bureau.