The Office of the Comptroller of the Currency is threading a tricky needle.

It has affirmed that it plans to evaluate fintech charter applicants based on their fair lending efforts, but it’s pulled back on specifics for how that process might work. That has made some consumer groups nervous.

The OCC published an updated version of its licensing manual supplement for fintechs on July 31, in connection with an announcement that it’s begun accepting applications for fintech charters. It’s a major step forward for an agency that’s been grappling with its role in overseeing the burgeoning fintech industry for years.

Comptroller of the Currency Joseph Otting
The OCC, headed by Comptroller Joseph Otting, said it would begin accepting fintech charter applications on July 31. Bloomberg News

Yet the updated guidelines appear to remove key details regarding how the agency will address a fintech’s financial inclusion efforts, when compared to an earlier draft manual published last March under former Comptroller Thomas Curry.

“The biggest concern for us is the unequivocal weakening of the accountability for these special-purpose national banks when it comes to financial inclusion,” said Scott Astrada, director of federal advocacy at the Center for Responsible Lending.

For its part, the OCC says that it modified its manual language from the earlier draft based on continued work and feedback received on the matter, according to agency officials interviewed by American Banker.

Steve Lybarger, deputy comptroller for licensing, emphasized “the seriousness of the agency in its commitment that these applicants have a financial inclusion commitment appropriate to the business plan and activities that they will conduct.”

“In no way, between the original draft and the final supplement, is there any intent of the agency to lessen that commitment going forward,” he said.

That aligns with the agency’s comments in its official policy statement, issued alongside the updated manual: “By providing a high standard similar to the Community Reinvestment Act’s expectations for national banks that take insured deposits, the financial inclusion commitment will help ensure that all national banks provide fair access to financial services and treat customers fairly.”

But for consumer advocates and civil rights groups, the removal of that additional clarity is worrisome because it effectively leaves it up to regulators to determine what counts as inclusion, with little public transparency.

“It appears, at least in terms of accountability, that they’ve softened the touch — and we’re concerned about that,” said Jesse Van Tol, chief executive at the National Community Reinvestment Coalition.

Rep. Maxine Waters, D-Calif., ranking member on the Financial Services Committee, said in a statement Wednesday that she is “especially troubled that these new fintech charters would be subject to weaker requirements for community reinvestment” relative to earlier iterations of the agency’s guidance.

Critics point to four passages removed from the manual:

  • Page 4 of the original draft cites a comment period on financial inclusion plans: “As described below, the OCC will condition its preliminary approval of an SPNB charter on the applicant’s implementation of a Financial Inclusion Plan (FIP). Accordingly, an applicant will be expected to include an FIP within its business plan and publish it for comment.”
  • On page 20, the previous manual emphasizes the role of community involvement: “The OCC recognizes that outreach to interested community and consumer groups may be particularly helpful in determining these community financial needs.”
  • Page 21 of the original manual highlights the need for charter applicants to address efforts to ensure non-discriminatory business practices, including full disclosure of terms and conditions, as part of the factors to be reviewed by the agency: “How the SPNB’s policies, procedures, and practices, including those described in its compliance management program, are designed to ensure products and services will be offered and provided on a fair and non-discriminatory basis, with full disclosure of terms and conditions to all customers, and in compliance with applicable laws and regulations.”
  • Page 22 details expectations that the public will have the opportunity to comment on the implementation of a financial inclusion plan and updates to it: “The FIP should address how the SPNB will continue serving the needs of the relevant market and community beyond the initial years after a charter is granted, including how the SPNB will do the following: [a] Communicate, and receive public input, regarding its progress in executing on its FIP; [b] Update or modify its FIP in appropriate circumstances, including significant deviations to its business plan, the products or services offered, or relevant markets and communities served; [c] Obtain, consider, and address public input in connection with updates to its FIP, when appropriate.”

OCC officials said that as they reworked the draft manual, they came to recognize the importance of maintaining as much flexibility as possible in the process to accommodate the diversity of businesses that might apply for a charter in the future. They use the term “financial inclusion commitment” in place of “financial inclusion plan” in the final manual.

“Throughout the document, we’ve tried not to tie ourselves down to specific procedures in a way that would not be adaptive to the kinds of business models we’re going to see coming in,” said Donna Murphy, deputy comptroller for compliance risk policy.

The officials also stressed that while the manual is there to provide guidance, it’s not necessarily exhaustive.

“The fact that in the final draft [something] is not spelled out in that fashion doesn’t mean that it is not the expectation and one we’ll be looking at and expecting to see in granting preliminary approval, as well as final approval, for these charters,” said Lybarger, noting that other OCC documents spell out the standards that would be expected of any institution granted a charter by the agency.

The agency attributes changes to the manual to an evolution in thinking about its purpose.

“It’s a slightly different direction — I think in the draft we sort of looked it as a multiple-audience document, and when we really came down to it, we believed the supplement needed to really be a guidance piece for potential applicants, and we narrowed the audience to that. In no way should that be looked at as lessening in any way of what our expectations are with respect to financial inclusion commitment,” Lybarger said.

Approval of a fintech charter will follow a two-step process. First, interested companies will submit an initial application, the public parts of which will be published online for a 30-day comment period.

That application will need to contain “a robust discussion about how they will approach their financial inclusion commitment,” said Lybarger. “We have to walk away believing that the organizing group understands what our expectation for financial inclusion commitment is and that they are capable of implementing in the organizational phase a commitment and the policies and procedures to effect that appropriately.”

Following preliminary approval, companies will need to drill down further to lay out the policies and procedures they plan to use to meet that commitment to financial inclusion. Those details will not be made public as a matter of course, though officials said that the agency could choose to do so at its discretion.

Typically, new banks do not need to publish their CRA plans for comment as part of the second phase of the application process, although those plans do become public once a bank is up and running.

Consumer groups and community bankers have been pushing the OCC to adopt strict standards akin to the Community Reinvestment Act for firms that obtain a fintech charter (on top of arguing that the OCC doesn’t have the legal authority to issue such charters at all). CRA has been an important tool for advocates over the years in pressuring banks to do more to help their local communities, which is why outside groups are keen to maintain similar oversight when it comes to fintech firms chartered by the OCC.

“CRA at its core says that a bank needs to be responsive to community needs, and so that measurement historically has not just been defined as an exercise between a bank and its regulator,” Van Tol said. “This has been used by community groups to encourage banks to change the way that they serve low and moderate-income communities.”

Ultimately, OCC officials and observers alike stressed that the first fintech applications will likely prove the best testing ground for how this process will work in practice.

“The fireworks will start when somebody actually applies and publishes a notice of the application,” said Sanford Brown, a partner at the law firm Alston & Bird. “There's a ton of details yet to be developed and that will come in the application process — that will be somewhat of an iterative process.”

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