During testimony before the House Financial Services Committee hearing entitled “Financial Industry Regulation: The Office of the Comptroller of the Currency” on June 13, 2018, Comptroller of the Currency Joseph Otting responded to questions concerning the Office of the Comptroller of the Currency’s (OCC) upcoming decision about whether to allow fintech companies to obtain a special purpose national bank (SPNB) charter.

Comptroller Otting opined that he believes that the National Banking Act provides the OCC with the authority to issue such a charter. In an exchange with Ranking Member Maxine Waters (D-CA), Otting noted his direct involvement in the OCC’s fintech initiatives, and reiterated his earlier public statement that the OCC will make a decision about whether to accept fintech company applications for SPNB charters in July. In response to questioning by Congresswoman Carolyn B. Maloney (D-NY), Otting stated that fintech companies would be subject to the “same supervision” as national banks, should the OCC move forward with the fintech charter. Otting later noted that it is the OCC’s expectation that such a SPNB charter, if made available to fintech companies, would require “similar capital liquidity and requirements to serve their community as a regular national bank.”

Otting also highlighted how the “world has changed dramatically over the last two years since Comptroller Curry went out. Fintechs used to think that they wanted to be banks; and, now, most are realizing because of the capital, liquidity, and commitment to the community they have to provide, they really don’t want to be — most don’t want to be banks anymore, but they want to be providers of services to banks. And so, we see more and more coming in and talking to us about how they partnership with banks to be able to provide portals and things where they can reach customers. So, while some will still want to be banks, more and more are moving toward saying I want to partner with banks and offer our services.” In particular, Otting noted how fintech technology platforms and portals offer opportunities and means to help financial institutions “approach the marketplace to get customers,” which could serve the goals of improving access to credit for underbanked and unbanked communities.

Otting also discussed the topic of partnerships between banks and fintech companies more broadly, including marketplace lending programs. He commented that the OCC is “supportive of these arrangements with fintechs where they are bringing technology to financial institutions that can do outreach to communities, customers, prospects.” He stated that the OCC “would expect [banks] to go through their normal vendor management programs to assess the risk associated with those entities.”

When asked by Congressman Andy Barr (R-KY) as to what the OCC can do to support innovators that make loans over the Internet and either have an interest in becoming a bank or partnering with a bank, should the OCC does not move forward with a charter, Otting stated that a number of state banking regulators have had meetings with the OCC. He highlighted how some state banking regulators are working to create coalitions where they can standardize the state banking laws. “We see that with the MSBs [money services businesses], with a number of states coming together and standardizing their MSB laws. So, if somebody wants to operate in multiple states, they don’t just have one choice, which is a national banking charter, but they can actually operate within those states with common laws,” Otting stated. To mitigate concerns about regulatory arbitrage, Otting commented that the way to guard against that is that those fintech companies that want to serve multiple markets have a choice: finding states that will synchronize their regulation process, or use the national bank charter process.

Comptroller Otting also testified before the Senate Banking Committee on June 14, 2018, but the fintech charter topic was not discussed.

Stay tuned for further developments! We will be sure to provide updates once the OCC announces its decision in July.