WASHINGTON — Acting Comptroller of the Currency Keith Noreika on Monday gave a ringing endorsement to online lenders seeking to expand into banking, suggesting they should consider taking deposits and seek out national bank charters as they mature.

“Some pundits see the growth of the online lending industry as a response to the nation’s banking industry,” Noreika said in prepared remarks for a speech at the Online Policy Lending Summit, an annual industry conference. “And some say that if the industry had been sufficiently agile and fully met the need for lending, alternative lenders would not have grown so rapidly.”

“I do not share that view,” Noreika said. “I see the growth of online lending and marketplace lenders as the natural evolution of banking itself.”

Keith Noreika, acting Comptroller of the Currency
“Some companies that set out to be ‘bank killers’ a few years ago are discovering the advantages of being part of the banking system,” said acting Comptroller Keith Noreika. Bloomberg News

Noreika argued that as it grows, the online lending industry has several reasons to consider directly entering the banking industry.

“Some companies that set out to be ‘bank killers’ a few years ago are discovering the advantages of being part of the banking system,” he said, a nod to fintech firms like the online lender Social Finance and the payments processor Square, two companies that recently applied for industrial loan company charters in Utah.

Noreika noted that as online lenders seek out new sources of funding, deposits are an attractive and cheap option.

“One way a maturing industry adapts to changing market conditions is to diversify its funding sources and expand into other sources that offer greater stability,” he said. “As the industry matured, companies have found a balance that includes selling loans to retail and wholesale investors, securitizing loans, and even exploring the potential for deposits.”

The acting comptroller also suggested that as the online lending industry grows, it will be forced to learn to manage risk — just as banks have.

“It remains to be seen how online lending companies and loans originated using new models will perform under stress,” Noreika said, noting that delinquency rates for credit card, auto and student lending had picked up in the last year. “That’s part of a maturing business, and risk is part of economic opportunity.”

But Noreika explicitly encouraged fintech companies to seek out oversight by the Office of the Comptroller of the Currency — by applying for various types of bank charters, including the traditional national charter, trust bank charter or credit card bank charter.

“We must avoid defining banking too narrowly or in a stagnant way that prevents the system from evolving or taking proper and responsible advantage of economic opportunities that result from advances in technology and commerce,” he said.

One charter he did not endorse online lenders to seek was the OCC’s fintech charter, which is being challenged by two ongoing lawsuits from state regulators. Noreika said that the agency had not decided whether to move forward with that initiative.

“We will keep you posted,” he said.

Making a case for the OCC’s innovation-friendly approach, Noreika cited a number of different measures the agency has taken since his predecessor Thomas Curry first broached the issue of so-called responsible innovation.

He also denied that the OCC had any responsibility for banks’ decisions to de-risk, or avoid serving entire lines of businesses deemed risky, including online lenders.

“We, at the OCC, expect banks to assess the risks posed by individual customers on a case-by-case basis and to implement appropriate controls to manage their relationships,” he said. “The OCC’s policy is not to direct banks to open or close individual accounts.”

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