WASHINGTON — Some fintech firms are flatly rejecting the Office of the Comptroller of the Currency's creation of a charter for such firms, citing fears that it will come with too many strings attached.
“This provides zero benefit to innovation,” said Timothy Li, the founder and CEO of Kuber, an online lender targeting college students. “It’s a self-serving act.”
Li argued that the OCC’s proposal is disappointing compared with so-called sandbox initiatives implemented in countries like the U.K., which allows companies to test their products outside of the usual regulatory framework, but under close watch by the government.
The chartering and supervision process offered by the OCC, Li said, is a costlier, slower proposition that seems out of reach for smaller companies.
“It's the opposite of some of what the other countries are doing,” he said.
Other fintech companies, meanwhile, are also wary of the new charter. Several have suggested they will wait until their more established peers test the waters, in order to get a better sense of the benefits and costs at stake.
“Maybe we're not one of the first ones out of the gate, but let somebody lead the way" and "you see how it works,” said Steve Carlson, the founder and chief executive of Ascend, an online lender based in San Francisco.
Even some of the larger technology companies appear to be sitting on the sidelines.
“We have a longstanding principle that lending and payment regulation needs more streamlining,” said Brian Peters, the head of Financial Innovation Now, a lobbying group that represents Amazon, Apple, Google, Intuit and PayPal. “That being said, any one FIN company may not apply for a charter,” Peters told American Banker in a recent Q&A.
Overall, the charter was created at the behest of fintech firms that want to avoid getting licenses in each state if they want to operate nationwide.
Yet while some are enthusiastic about what the OCC has put forth, others are adopting a wait-and-see approach for a number of reasons.
For one, the OCC’s initial outline of the charter remains vague on a number of key issues, including the level of capital and liquidity requirements the agency will impose on firms.
Another sore point, particularly for young companies, is a three-year business plan the OCC plans to ask companies to submit. The agency also is requesting that fintechs submit living wills as part of their application.
“What types of handcuffs or restrictions would that place on these companies that have to be pretty nimble as they figure out a way in the marketplace?” said Brock Blake, CEO and co-founder of the online marketplace Lendio, which partners with 75 different lenders.
Still, many fintech firms are hoping these details will be hashed out in an upcoming policy paper the agency is set to publish that will take into account a recent round of public comments.
“Kabbage is excited to engage with the OCC” once the comments have been processed, said Sam Taussig, the head of government relations and community banking at Kabbage.
OCC spokesman Bryan Hubbard said that, while “companies of all sizes and maturity have expressed interest,” the agency was still reviewing more than 100 public comments it has received regarding the charter.
“We take each comment seriously and are using them to inform our efforts,” Hubbard said in an email.
Regardless, many fintech companies plan to wait until the first few applications have been granted.
“People want to see someone go through the process and be able to provide some commentary on what the experience was like and how it benefited them,” Blake said.
They may be extra cautious, because Comptroller Thomas Curry’s term expires in April and it's unclear how a successor will change the rules surrounding the charter.
Fintechs are also wary of the backlash the OCC has faced from state regulators, Democratic lawmakers and consumer protection groups, which raises the possibility of litigation targeting the charter.
“That made it much more of a high-risk endeavor,” said John Beaty, a partner at Venable. “If your application is pending and that lawsuit is brought, it certainly slows down your application and you could get swept up in that litigation."