Federal Charter for Nonbanks Invites Outlaw Monopoly

G. Michael Flores' op-ed "Federal Charter for Nonbanks Would be Good News for Small Banks" is one of many efforts to persuade Congress to support the deeply flawed proposal to give the Office of the Comptroller of the Currency (OCC) authority to grant nonbanks federal charters.

I testified at one of the same House hearings as Mr. Flores on behalf of the National Pawnbrokers Association (NPA). As the pawn industry's only national trade association, the NPA represents 1,800 independent owners of pawn stores.  My testimony detailed the NPA's many objections to this nonbank federal charter legislation. It represented my own small business, as well as others whose futures will be harmed by legislation that allows a few mega-providers to have federal charters, while leaving the rest of us behind competitively.  Our businesses proudly provide face-to-face services to more than 30 million consumers annually and we employ folks in towns across the U.S.

The OCC also opposed federal charters at the House hearing on July 24th. When is the last time anyone can recall a federal agency turning down the opportunity to expand its jurisdiction?  The OCC expressed concerns about safety and soundness, consumer protection and even the difficulty of engaging in oversight of new charter holders and their partners' anti-money laundering compliance programs.

The Conference of State Bank Supervisors (CSBS), whose members are state banking commissioners or superintendents of financial services departments that currently charter many community banks, credit unions, and license pawnbrokers and other non-depository credit providers, also testified against the bill. CSBS's witness raised concerns much like the OCC's and the NPA's.  However, it now appears the legislation's proponents are attempting to garner support for their federal charter proposal from the very community banks whose businesses the legislation will hurt. Divide and conquer, I think not. 

Mr. Flores argues H.R. 6139 would provide the OCC oversight of nonbank charter holders, but that is not accurate. H.R. 6139 only gives the OCC three powers. The first is the power to increase the maximum loan size that charter holders could offer from $5,000 unsecured and $25,000 secured, sums that most of the moderate income consumers proponents of the bill purport to want to help won't qualify for and arguably are not the small dollar loan amounts that bill supporters claim are needed. Second is the power to "disapprove" the products and services that Federal Charter holders propose to offer to "underserved consumers" (a term defined in the bill) and small businesses.  The OCC must disapprove within 45 days or the products and services will be "deemed approved," a pretty tight timeline for any bank regulatory agency.  The OCC can disapprove only if it can show the proposal will "significantly harm" consumers or small business on the basis of a record that is "fair and reasonable," whatever that means. And third, the OCC would get enforcement powers, but would be limited to the products and services designed specifically for underserved consumers and small businesses.  It would not get enforcement powers for any other product charter holders might devise.  Future charter holders would get most of the new powers.

"Traditional finance companies" have not "all but disappeared," as Mr. Flores contends.  Companies like mine and my fellow NPA members', as well as others offering auto finance, installment loans and additional services remain in business.  We collectively serve the same 60 million consumers that alternative financial services companies say are in need of the products that they want to offer as quasi-monopoly providers with federal licenses.

These mega-providers want to operate nationwide and on the Internet without complying with state or local licenses and laws for their products and services. Their wish-list is for a federal regulator that lacks authority to engage in much oversight and supervision of their operations.

Mr. Flores also says "banks are not serving" some consumers and small businesses – a statement both my community banker and I would challenge.  Local providers serve communities where we know our customers, as do community banks and locally based credit unions.  Congress should not hurt our ability to continue helping local communities and consumers by giving mega-companies we currently compete with the right to drive us out of business.

Fran Bishop is a past president of the National Pawnbrokers Association and of the Alabama Pawnbrokers Association.