Comptroller of the Currency Thomas Curry on Monday defended plans to offer a nonbank charter to fintech firms, disputing arguments by state regulators that his agency lacks the legal authority to do so and emphasizing that it will appropriately monitor any firms that go through the rigorous application process.
“Some have questioned whether we have the authority to grant charters to such companies and the experience to supervise them,” Curry said, speaking in New York at the annual LendIt conference. “To be clear, the National Bank Act does give the OCC the legal authority to grant national bank charters to companies engaged in the business of banking.”
State regulators, Senate Democrats and others who oppose the OCC’s fintech charter have claimed that the agency would need congressional backing to offer it. They contend that fintech firms do not conduct all activities of a bank, as defined in the 1863 law that founded the OCC.
"It is far from clear whether the OCC has authority to grant national bank charters to" fintech companies, Sens. Jeff Merkley, D-Ore., and Sherrod Brown, D-Ohio, wrote in a letter to Curry earlier this year. “Congress has given the OCC a very narrowly-defined authority to charter only three specific types of special-purpose national banks,” they said, citing bankers’ banks, credit card banks and trust banks.
But Curry countered that companies that pursue any combination of the classical functions of a bank — taking deposits, cashing checks and lending — fall within the OCC’s chartering purview.
“That authority includes granting charters to companies that limit their business models to certain aspects of banking, and it is not circumscribed just because a company delivers banking services in new ways with innovative technology,” he said. “Neither does the law require that a bank take deposits to qualify for a national bank charter.”
The OCC has said its new charter would be primarily targeted at companies which do not take deposits. If a firm did take deposits, it would have to get separate approval from the Federal Deposit Insurance Corp.
Curry said the Comptroller's Office has the resources necessary to charter and appropriately supervise fintech firms.
“Whether it’s an issue of law, appropriate governance or a complex question of modeling risks, the OCC has the resources to meet the challenge,” he said. “The resources supporting the supervision and function of the federal banking system are unmatched.”
Proponents of the charter have argued that state regulators can often be underfunded and that navigating the various state laws can be challenging for fintech startups. A charter with a single set of federal rules could make the process simpler and safer, they said.
But state regulators and consumer groups have argued that the ability of OCC-supervised banks to skirt local usury and consumer protection laws contributed to the 2008 financial crisis.
Curry, whose term as comptroller expires in April, reiterated Monday that the OCC does not intend to lower the regulatory requirements for fintech companies that seek out the charter.
He said he wanted to dispel "the notion that receiving a national bank charter is a ticket to light-touch supervision. That is not the case.”
Obtaining a charter would require a fintech company to follow a number of laws that “apply uniquely to national banks,” as well as capital and liquidity standards, Curry said. In addition, fintech firms would have to be supervised by the OCC, which conducts regular, on-site examinations.
Curry offered a strong defense of the overall federal government’s post-crisis consumer protection record.
“Consumer protection has changed significantly since the financial crisis,” he said, citing measures such as the creation of the Consumer Financial Protection Bureau and the modification of preemption rules under the Dodd-Frank Act. “Furthermore, the OCC has adopted the position that state [unfair and deceptive acts and practices] laws apply to national banks.”
The comptroller also responded to worries that the charter might allow payday lenders, or other predatory actors, to be given access to consumers nationwide.
“The OCC shares concerns about predatory lending and has taken significant steps to eliminate abusive practices in the federal banking system,” Curry said. “The OCC will not approve charter proposals from any company that plans to offer financial products and services with predatory or abusive features.”
Curry also addressed another criticism that has been levied against the charter: that it could erode the separation of banking and commerce.
It is still unclear exactly how a fintech company chartered as a bank will stand with respect to things like Federal Reserve Board membership, access to the discount window and Bank Holding Company Act provisions.
But Curry said the OCC opposes the mixing of banking and commerce through its charter, though he did not specify precisely how he intended to handle the issue.
“Commingling banking and commerce could introduce risks associated with non-banking-related commercial activities, interfere with the allocation of credit, and foster anti-competitive effects and undesirable concentrations of economic power,” he said. “Proposals that would mix banking and commerce are inconsistent with the OCC’s chartering standards and would not be approved.”
In addressing his audience, which was made up largely of fintech industry representatives, Curry also offered some words of encouragement.
“I don’t say these things to scare off companies that may be thinking about a national charter,” he said. “There is great value in a federal charter, but it’s not for everyone.”