The New York State Department of Financial Services (NYDFS) has come out strongly against an Office of the Comptroller of the Currency (OCC) proposal to grant national bank charters to financial technology (fintech) companies.
In a comment letter written by NYDFS Superintendent Maria T. Vullo, NYDFS claimed that the OCC's proposal to give national bank charters to fintech firms would lead to a parade of problems, such as increasing regulatory risk and uncertainty, stifling small business innovation, creating institutions that are "too big to fail," undermining state consumer protection laws, and increasing the systemic risks posed by nonbank entities.
Ms. Vullo characterized the OCC's definition of "fintech" as "amorphous" and "exceedingly broad and undefined." She asserted that the OCC lacks authority to charter nonbank financial institutions under the National Bank Act.
But even assuming the OCC had such authority, Ms. Vullo argued that the proposal would have significant negative effects on existing state regulatory regimes applicable to nonbanks and would encourage fintech companies to engage in regulatory arbitrage to avoid state consumer protection and usury laws. Ms. Vullo also touted the NYDFS's experience dealing with unique issues posed by nonbank entities, claiming that the OCC lacked experience in this arena and was ill-equipped to deal with those issues.
The NYDFS comment letter also argues that the OCC's proposal would exacerbate public concerns about institutions that are "too big to fail" by allowing "a small number of technology-savvy firms [to] dominate different types of financial services simply because they were able to get a national charter." Further to this concern, Ms. Vullo stated that chartering a small number of large fintech firms may in turn stifle innovation by allowing "more dominant firms to control the development of technology solutions in the financial services industry." According to Ms. Vullo, dominance in the fintech space by just a few chartered entities could in the long run hurt customers in underserved communities after areas of "easy growth" are exhausted. In sum, Ms. Vullo concluded, the OCC's fintech charter proposal threatens to create "a complicated, problematic, new regulatory regime" that the NYDFS completely opposed.
Of course, not all responses to the OCC's proposal were critical. The American Bankers Association (ABA) filed a comment letter generally supporting the OCC's proposal, though ABA support was conditional on the OCC applying to fintech companies' "existing rules and oversight... consistent with those for any national bank." According to the ABA, the significant weight and responsibilities of a bank charter, coupled with the instant credibility a charter provides, make it important that "special purpose charters are subject and held to the same high regulatory standards as full-service national banks." The ABA stated there was significant danger to the entire banking sector if the OCC did not proceed carefully and deliberately, as "any missteps by a fintech company operating through a national bank charter will inevitably reflect on all banks."
The ABA argues that fintech companies must be required to:
The ABA asserts that the OCC should collaborate with other bank regulators such as the Federal Reserve Board, the Consumer Financial Protection Bureau, and the Federal Deposit Insurance Corporation to set expectations and obligations well in advance of granting any fintech charters.
Finally, once a fintech company is chartered, the ABA proposed additional ongoing responsibilities, such as adherence to fair lending requirements and implementation of compliance programs with anti-money laundering rules, countering the financing of terrorism rules, and with Office of Foreign Assets Control regulations. However, the ABA supported the OCC's proposal to allow greater flexibility under the Community Reinvestment Act to fintech companies and other chartered entities alike.
It remains to be seen what effect, if any, comments by stakeholders such as the NYDFS and the ABA will ultimately have on the OCC's fintech proposal.
