CSBS Policy Briefings

OCC Fintech Charter

CSBS Official Public 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, the OCC has attempted to implement a special purpose national bank charter for fintechs that do not take deposits and therefore will not be seeking FDIC deposit insurance. 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. In 2020, then-Acting Comptroller Brian Brooks pursued an aggressive fintech agenda, which included promoting a “payments charter” that was nothing more than the fintech charter promoted specifically to payments companies. To date, the OCC has not issued any “fintech charters.” In November 2020, the financial services company Figure submitted an application for a national bank charter. Based on publicly available information, Figure will not be applying for deposit insurance. CSBS filed a lawsuit against the OCC in April 2017 seeking to prevent the OCC from granting national bank charters to nonbank entities that would not be taking deposits and not obtaining deposit insurance. CSBS’ position is that 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. In December 2020, CSBS ag ain filed a complaint challenging the OCC’s authority to issue national bank charters to entities that are not seeking deposit insurance. In June 2021, CSBS filed an unopposed motion to stay litigation due to Acting Comptroller Michael Hsu’s testimony stat ing that the OCC was reviewing their framework for chartering national banks. 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 and obtaining deposit insurance are 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. On June 23, 2021, the U.S. Court of Appeals for the Second Circuit dismissed NYDFS’ challenge to the OCC special purpose charter. Legal Action

Why It Matters to State Regulators

As proposed by the OCC, the federal charter would preempt state licensing and supervision of 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.

Talking Points

• A national bank charter for institutions that do not take deposits and do not obtain deposit insurance exceeds the OCC’s statutory authority FOR STATE REGULATOR USE ONLY