Why OCC fintech charter may have life under new leader
WASHINGTON — With legal challenges and uncertainty about the agency's leadership, the Office of the Comptroller of the Currency's fintech charter appeared dead in the water just months ago. But industry observers say the OCC's interim chief is emerging as a potential savior for the controversial initiative.
“We're seeing an assertive OCC,” said Brian Knight, a senior research fellow at the Mercatus Center. “And this is an area where they can very legitimately claim leadership among federal regulators.”
The OCC’s fintech charter was the flagship initiative of Former Comptroller Thomas Curry, who stepped down in May after his term had expired but before the agency finalized the charter. He left with fintech industry participants calling the charter requirements too rigorous, state regulators suing over the OCC's authority to grant charters and Republican lawmakers calling for the initiative to be paused.
But some observers see recent comments by acting Comptroller Keith Noreika as a sign that the agency will plow ahead. For example, in recent written testimony to Congress, he called for general steps to ease the process for companies seeking banking charters, and asked Congress to clarify the OCC's authority to place companies in receivership, a key element of the fintech chartering plan.
“Given what's been invested in this, I'd be surprised to see them walk away from" the fintech charter, said Daniel P. Stipano, a partner at Buckley Sandler and former deputy chief counsel at the OCC.
To be sure, Noreika has not made explicit statements about the fintech charter initiative, so it is not entirely clear if he plans to continue the work spearheaded by Curry, table it, or even possibly pursue a different fintech strategy. The industry may get clarity later this month; Noreika on Friday said he plans to give a speech about the special-purpose charter on July 19 at the Exchequer Club.
Meanwhile, in addition to the obstacles already standing in the fintech charter's way, Noreika is only an acting comptroller who lacks Senate confirmation, which could limit his clout. The agency may need to wait for a permanent comptroller to decide its approach on the new charter. Joseph Otting is the Trump administration's nominee.
“I am very skeptical that the acting comptroller would do something,” said Joseph Lynyak, a partner at Dorsey. “He lacks the policy authority that a full-time comptroller possesses.”
And the proposal still faces the ire of consumer groups and state regulators wary that the charter would override local usury caps and other laws. In two ongoing lawsuits, state regulators have called into question the OCC’s authority to grant such nontraditional bank charters to fintech firms.
Meanwhile, the plan received lukewarm support from many fintech groups, who worried that it set too high a bar for capital requirements and financial inclusion policies. Even conservatives were dissatisfied with Curry’s proposal. In March, 34 House Republicans asked the OCC to slow down its work on the fintech charter, citing transparency concerns.
“Given some of the controversy around it, I would think they would at least take a hard look at the framework before moving ahead,” said Stipano. "The balancing act that has to be performed in order to minimize opposition is to build enough protections into the charter to satisfy concerns about compliance and safety and soundness, without going so far as to alienate those who support it from a business perspective."
To soften the fintech charter’s requirements, the OCC could simply update the draft licensing manual that it opened up for public comment in March. The document laid out a blueprint of the OCC’s requirements for fintech companies interested in the special-purpose charter.
“Agency decisions will be reflected in the supplement when finalized,” Beth Knickerbocker, the OCC's chief innovation officer, said in a statement. “Any company that receives a national bank charter will be held to the same high standards of safety and soundness, fair access, and fair treatment of customers that apply to all national banks and federal savings associations.”
Knickerbocker said that the agency “has not determined whether it will accept or act upon applications from nondepository fintech companies for a special-purpose national bank charter.”
Observers said the lawsuits challenging the legality of the charter filed by the Conference of State Bank Supervisors and the New York State Department of Financial Services still pose a challenge.
“Before the OCC can really do anything, the litigation needs to move forward,” said Pratin Vallabhaneni, an associate at Arnold Porter Kaye Scholer.
And yet, Noreika’s ambitious agenda laid out in the hearing testimony last month referenced several policy issues that are near and dear to the fintech industry. His comments reflected the business-friendly regulatory stance taken by the Trump administration, suggesting he supports new entrants into the industry.
“Having multiple options is definitely consistent with where the current administration is going,” said Vallabhaneni. “It seems that he's in favor of more charters than fewer.”
For instance, he urged Congress to pass a law reversing the Madden v. Midland Funding decision, which placed debt servicers and other financial companies at risk of violating interest rate caps even when maintaining a loan’s original interest rate.
Noreika also asked Congress to clarify what authority the OCC had to place under receivership a nondepository, federally chartered institution. That is the precise category of firms targeted by the fintech charter. Such a move could ensure that the OCC has the powers to manage the failure of a fintech company if it were to be chartered by the agency.
“They want to have all the tools they think they're going to need,” said Knight at the Mercatus Center. “And receivership of a nondepository institution is potentially one of these tools.”
Noreika even suggested removing the Federal Deposit Insurance Corp. from the application process for new bank charters, which could make it easier for a broad array of financial institutions, including fintechs, to obtain federal charters.
In general, he took aim at the process for chartering new banks, saying that policymakers could take steps to make it more efficient.
"The current process wastes resources, results in unnecessary delays, and represents a significant barrier to entry into the banking business," Noreika said in the written testimony. "Instead, we should ensure that our processes tilt in favor of chartering and insuring entities that can qualify under the statutory standards."