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The Examiner

"I hated cottage cheese, but one time we stayed submerged for a long time and when the ship surfaced I began to crave cottage cheese. I think breathing the recycled air changed my metabolism."

- Jerry Armstrong, Sonar Operator
Describing life in the Nautilus, the first nuclear-powered sub, 
and first naval vessel to travel under the North Pole this day in 1958

Treasury Releases Fintech Report, OCC Announces Fintech Charter

The Treasury Department this week released a report with numerous recommendations covering nonbank supervision, fintech companies, and innovation, and the OCC announced they will proceed with offering a fintech charter.

Several recommendations by Treasury have a direct impact on how state regulators supervise nonbank and fintech companies, including:

OCC Fintech Charter

  • Treasury recommends that the OCC move forward with applications for special purpose national bank charters, commonly known as the OCC Fintech Charter
  • To reduce taxpayer risk, the Fintech Charter should not be permitted to accept FDIC-insured deposits
  • The Federal Reserve should consider whether recipients of a Fintech Charter should receive access to federal payment services.
  • CSBS strongly opposes the OCC Fintech Charter

Federal Sandbox

  • Treasury recommends that federal and state financial regulators establish a unified regulatory sandbox that provides regulatory relief and promotes innovative products, services, and processes.
  • If state and federal financial regulators cannot do this, Treasury recommends that Congress consider legislation to enable a fintech sandbox, preempting state laws if necessary.

Harmonizing Multistate Nonbank Regulation

  • Treasury supports state regulators' efforts to harmonize multi-state licensing requirements, citing by name and crediting states with CSBS Vision 2020.
  • Treasury recommends more accelerated action to reduce inconsistencies across state laws and recommends a passporting system for licensing.
  • If states are unable to achieve meaningful harmonization within three years, Treasury recommends Congress act to force greater uniformity between the states.

The Treasury report contains more than 80 recommendations, and CSBS will review these closely in the coming weeks with more information and analysis to come. CSBS also will review the OCC action with our members who will determine the organization's next steps.

CSBS Responds to the OCC and Treasury 

Statement by John W. Ryan 
President and Chief Executive Officer, Conference of State Bank Supervisors 

Two developments occurred today: a report issued by the Treasury Department on financial innovation and a decision by the Office of the Comptroller of the Currency (OCC) to move forward with creating a new national bank charter for select, uninsured fintechs.  

OCC Charter

An OCC fintech charter is a regulatory train wreck in the making. 

Such a move exceeds the current authority granted by Congress to the OCC. Fintech charter decisions would place the federal government in the business of picking winners and losers in the marketplace. And taxpayers would be exposed to a new risk: failed fintechs.  

Let us not forget that the last time the OCC pre-empted state consumer protection laws in a sweeping manner -- in the early 2000s -- predatory lenders were let off the hook and contributed to the largest number of home foreclosures since the Great Depression. 

On behalf of the citizens to whom we are accountable, state regulators are keeping all options open to stop this regulatory overreach. 

Treasury Report

Supporting innovation requires financial regulators to think creatively about our responsibilities, and it is appropriate for the Treasury Department to join the public debate.  

We appreciate the Treasury’s recognition of the vital role performed by state regulators in overseeing nonbank financial service providers. And we are pleased that Treasury noted the substantial progress states have made towards harmonizing the multistate experience for industry.  

Through CSBS Vision 2020, we are modernizing nonbank regulation by shaping an integrated, 50-state system of licensing and supervision for fintech firms and other nonbanks. 

At the same time, we disagree with certain Treasury recommendations. We do not support creation of new federal rules or unauthorized federal charters that would seek to compromise the ability of state officials to apply and enforce state laws. And so, we disagree with Treasury’s recommended changes to the valid-when-made doctrine and the true-lender doctrine, and the creation of an OCC special purpose bank charter for fintech companies. 

Education Department Oversight of Student Loan Companies Panned by Treasury

Even while the Treasury Department endorses federal overreach in fintech, the agency recognizes the shortcomings of federal supervision in education.

Politico Pro [Subscription Required] Reports:

A Treasury Department report released Tuesday criticizes the Education Department's oversight of the federal student loan program and calls on Congress to hold low-performing colleges more accountable. The sweeping report, submitted by Treasury Secretary Steven Mnuchin to the White House, recommends that the Education Department create minimum standards for federal student loan servicing companies. The report also appears to challenge Education Secretary Betsy DeVos' argument that states lack the authority to regulate those companies.

CSBS opposes the Education Department's plans to preempt state supervision of the student loan industry.

Responsibility for regulating and supervising debt collectors – like other nonbank financial services -- has historically resided at the state level. The licensing of financial services activities takes place primarily at the state level, because, as a function of the inherent police power of the states, the protection of the public welfare is primarily a matter of local concern.1 Indeed, as Justice Brandeis explained over 70 years ago: “[i]t is one of the happy incidents of the federal system that a single courageous State may, if its citizens choose, serve as a laboratory; and try novel social and economic experiments without risk to the rest of the country.”

Congress has deliberately preserved this cooperative state-federal regulatory framework for nonbank financial services activities for the benefit of consumers and providers of financial services alike. Consumers benefit because the proximity of the state regulatory framework has proven to be more accountable to local concerns and enables the public to conduct their own assessment as to whether the degree of consumer protections afforded by a State accords with their personal preferences.

Preemption of state licensing or regulation is a policy response that Congress has carefully considered and chosen to do in certain circumstances through specific legislation. The Department’s purported interpretation, in addition to flouting Congressional intent, also upsets the calibrated state-federal balance of financial regulation of student lending.

North Dakota Requests Real Estate Appraisal Waiver

North Dakota asked for a federal waiver of real estate appraisal requirements that would allow local banks to make valuation assessments due to an appraiser shortage. North Dakota is the first state to make use of the temporary waiver request. 

The shortage of available appraisers in North Dakota hurts consumers’ timely credit availability, slows economic development and threatens the viability of rural communities. Appraisals in some parts of the state are taking up to three months for residential and agricultural real estate loans in the state. And in some cases, the transactions have fallen through. 

“North Dakota financial institutions are community based and relationship oriented. They are well prepared to fairly and accurately assess property values, which will provide relief to the existing supply of appraisers,” said Commissioner Lise Kruse.

Previously, CSBS sent letters to the Appraisals Subcommittee and to the federal agencies advocating for limited appraisal waivers, among other changes, to increase availability of appraisers in rural areas.

Minnesota Begins Using the Uniform Mortgage Test

CSBS announced that the Minnesota Department of Commerce began using the National SAFE Mortgage Loan Originator (MLO) Test with Uniform State Content, bringing the total number of state agencies that use the test to 59.

The test combines both the national and state testing requirements of the SAFE Act. Previously, Minnesota licensees had to take two tests: one national and one state. The new test replaces the separate, state-specific tests. A license applicant who passes the National SAFE MLO Test with Uniform State Content will not need to take any additional state-specific tests to hold a license within participating states.

Minnesota Commerce Commissioner Jessica Looman said, “The Minnesota Department of Commerce is committed to ensuring a strong, competitive and fair licensing program for the financial services industry. Under the uniform test, Minnesota professionals can become licensed as loan originators efficiently and affordably, obtaining licenses nationwide by taking a single exam.”

The SAFE Mortgage Licensing Act of 2008 requires all MLOs to be registered or state-licensed through the Nationwide Multistate Licensing System and Registry (NMLS).

More information on the National SAFE MLO test with Uniform State Content is available here.

Senate Nominations Update

The Senate's summer schedule has been filled with hearings and floor debate on several nominations for federal agencies. This week, the Senate Banking Committee postponed the votes for nominees for the CFPB, SEC, Ginnie Mae and the Export-Import Bank.

Consumer Financial Protection Bureau: Kathleen Kraninger to become Director. Status: Senate Banking Committee has held a hearing. Next step: a vote by the committee; Senate is in recess until August 13. You can read her opening statement here, along with statements by Committee Chairman Mike Crapo (R-ID) here and Ranking Member Sherrod Brown (D-OH) here

Securities and Exchange Commission: Elad Roisman to become a Member. Status: Senate Banking Committee has held a hearing. Next step: a vote by the committee; Senate is in recess until August 13. You can read his opening statement here.

Ginnie Mae: Michael Bright to become President. Status: Senate Banking Committee held a hearing last week. Next step: a vote by the committee; Senate is in recess until August 13. 

Export-Import Bank: Kimberly Reed to become President. Status: Senate Banking Committee has held a hearing. Next step: a vote by the committee. You can read her opening statement here, along with statements by Committee Chairman Mike Crapo (R-ID) here and Ranking Member Sherrod Brown (D-OH) here