Washington, D.C. – Comptroller Curry today raised important issues related to financial regulation. State regulators agree that financial technology offers potential to improve the financial system’s ability to provide access to credit and operate more efficiently. We look forward to advancing this public debate.
State regulators believe, however, that a special purpose charter from the OCC for fintech firms is fatally flawed, and represents a direction that threatens to damage the U.S. financial system.
Quote attributable to John W. Ryan, president and chief executive officer at CSBS: “Today’s announcement represents an historic expansion of the role of the federal government, one that will permeate into the economies in all 50 states and distort the financial system with unwelcome consequences.”
CSBS has the following concerns about a new OCC charter:
First, a federal fintech charter will distort the marketplace and institute command-and-control innovation. State regulators are concerned that the OCC’s subjective criteria for awarding charters, and its intent to not include the normal regulatory safeguards placed on national banks – such as deposit insurance -- would result in the OCC choosing winners and losers within the fintech industry as well as the broader banking industry, a sharp departure from the role of a financial regulator.
Second, the OCC is expanding its mandate absent statutory authority. The National Bank Act does not give the OCC authority to issue full-service bank charters to institutions that do not engage in deposit taking. To get around this, the OCC is relying on its own regulations – not the National Bank Act – to create a non-depository special purpose charter for fintech firms. However, there is no historical precedent for such a charter in the national banking system. In fact, Congress for more than a century and a half has purposely limited the OCC’s chartering authority, as CSBS made clear in our comment letter of Nov. 14.
Third, despite assurances to the contrary, we believe consumers will be at risk. The OCC has a history of pre-empting state consumer protection laws in ways that damaged consumers. During the early 2000s, many states adopted laws and brought enforcement actions to stop predatory lending. The OCC’s response was to preempt the application of state anti-predatory lending laws to national banks and their operating subsidiaries, thereby permitting unsafe and abusive lending practices to flourish in the lead up to the U.S. financial crisis. It later required congressional action to reset the balance between state and federal regulation in consumer protection. State regulators believe that, when it comes to pre-emption, the past is prologue.