CSBS Issue Briefings - August 2020

OCC Fintech Charter

CSBS Official Position

CSBS opposes the Office of the Comptroller of the Currency (OCC)’s proposed federal fintech charter.

Summary

Fintech, or financial technology, is an umbrella term that commonly refers to companies and products leveraging technology in financial services. Companies and activities that self-identify as fintech include online lenders (Quicken Loans), digital wallets (PayPal, Apple Pay), peer-to-peer payments (Venmo), crowdfunding (Kickstarter), micro-loans (Kiva), marketplace lending (Lending Club, Prosper) and big data companies (Mint, Banktivity). Currently, many fintech firms are licensed and regulated primarily by the states. For the past several years, to OCC has attempted to implement a special purpose national bank charter to fintechs that do not take deposits. CSBS and state regulators oppose the so-called fintech charter for a number of reasons, chief among them that this is not allowed by the National Bank Act. Over the summer in 2020, Acting Comptroller Brian Brooks proposed that the OCC will offer the “fintech charter” for nonbank payments companies sometime in the fall. CSBS filed a lawsuit against the OCC in April 2017 seeking to prevent the OCC from granting national bank charters to entities that operate as nonbanks, arguing such charters exceed the authority granted by Congress. The U.S. District Court of the District of Columbia dismissed the lawsuit in April 2018, stating the dispute was not “ripe,” as the OCC had not decided whether it would proceed with the fintech charter program. In July 2018, OCC finalized its fintech charter guidance and announced it would begin accepting applications. CSBS refiled its lawsuit in October 2018. In August 2019, the court again dismissed our case as not ripe because the OCC had not accepted an application for a fintech charter. The New York Dept. of Financial Services on Sept. 14, 2018, also filed a suit against the OCC to stop the proposed national charter. In June 2019, the court denied OCC’s motions to dismiss and held that receiving deposits is indispensable to the business of banking. In October 2019, the court issued a final order invalidating the regulation relied on by the OCC. The court specified that its order had nationwide applicability. In December 2019 the OCC appealed this ruling to the Second Circuit in December. CSBS filed an amicus brief supporting the NYDFS in July 2020. Consumer groups, a national banking trade group and legal scholars also filed briefs supporting the NYDFS. Legal Action

Why it Matters to State Regulators

As proposed by the OCC, the federal charter would preempt state oversight over fintech companies involved in payments and/or lending, allowing those companies to avoid licensure and consumer protection and safety and soundness oversight by the states.

Facts, Stats, and Anecdotes

FOR STATE REGULATOR USE ONLY