CSBS Issue Briefings - January 2020

CSBS ISSUE BRIEFING

OCC Fintech Charter

CSBS Official Position CSBS opposes the Office of the Comptroller of the Currency (OCC)’s 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. 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 against dismissed our case as not ripe because the OCC had not accepted an application for a fintech charter. Why it Matters to State Regulators A federal charter could allow fintech companies to avoid licensure and supervision in the states in which they operate and remove the ability of state supervisors to decide what businesses operate within their state borders. Talking Points • An OCC federal fintech charter is a train wreck in the making. • All options are on the table for CSBS action. • A national bank charter for uninsured institutions exceeds the OCC’s statutory authority. • A fintech charter would distort and harm the marketplace by arbitrarily picking winners and losers, which smacks of centralized industrial policy. • OCC’s charter would preempt strong state consumer protection laws, such as interest rate caps. • Taxpayers would be exposed to a new risk: failed fintechs. • The last time the OCC pre-empted state consumer protection laws in a sweeping manner--the early 2000s--predatory lenders were let off the hook and contributed to the largest number of home foreclosures since the Great Depression. Facts, Stats, and Anecdotes 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 and in December 2019 the OCC appealed this ruling to the Second Circuit. SME Contact: Margaret Liu , Sr. VP, Legislative Policy & Deputy General Counsel: (202) 728-5749 or MLiu@csbs.org Date Updated: 01/14/2020

FOR STATE REGULATOR USE ONLY