The Battle Over the Proposed OCC FinTech Charter Continues. The Office of the Comptroller of the Currency (OCC) has released a draft supplement to its Licensing Manual explaining the process for FinTech companies to charter a special purpose national bank. Details are below. While the OCC’s licensing supplement sheds some much needed light on the process for FinTech companies to apply for a national bank charter, opponents of the special purpose charter remained critical. As discussed in the January 25 and March 15 editions of the Roundup, states’ banking regulatory authorities and members of Congress have heavily criticized the OCC’s actions. As discussed below, the OCC addressed many of these criticisms in the summary of public comments it released in connection with the Licensing Manual supplement. Nevertheless, the Conference of State Bank Supervisors (CSBS) and the New York State Financial Services Superintendent remained skeptical, each issuing statements criticizing the OCC’s recent guidance. The CSBS stated that the OCC had “acted beyond the legal limits of its authority, bypassed and ignored bipartisan objections from Congress, and created new risks to consumers and taxpayers.” The New York Superintendent stated, “The imposition of an entirely new federal regulatory scheme on an already fully functional and deeply rooted state regulatory landscape will invite efforts to evade state usury laws and other consumer protections, stifle small business innovation, create institutions that are too big to fail, and increase the risks presented by nonbank entities.” The CSBS also asked Congress to “continue to weigh in on this important issue.” With state regulatory agencies defending their turf, both parties in Congress raising questions about the substance and pace of the proposed special purpose FinTech charter, public comments on the draft supplement due on April 14, and Comptroller Curry’s term ending later that month, it promises to be a critical month for the proposed special purpose FinTech charter.
Regulatory Developments
Client Alert: OCC Issues Draft Supplement Outlining Application Process for FinTech Charters
The OCC has released a draft supplement to its Licensing Manual that explains the process for an entity engaged in financial technology—or FinTech—activities to charter a special purpose national bank (an SPNB) and the considerations that the OCC will take into account when evaluating a proposal to charter an SPNB. This action follows the OCC’s release in December 2016 of a paper that addressed and requested public comment on the agency’s plans to consider applications for national bank charters from FinTech companies, which was described in an earlier client alert. At the same time that the OCC released the draft supplement, it also released a summary of public comments that the agency received in response to its December 2016 paper. The OCC has requested public comments on the draft supplement by April 14, 2017. For more information, view the client alert issued by Goodwin’s FinTech Practice.
SEC Staff Issues an Information Update for Advisers Relying on the Unibanco No-Action Letters
The staff of the SEC’s Division of Investment Management issued an information update for investment advisers relying on the relief set forth in a long line of no-action letters referred to as the “Unibanco letters.” The Unibanco letters provide relief to investment advisers and their affiliated companies to allow them to utilize personnel and other resources of affiliated but unregistered non-U.S. advisers in providing investment advice to U.S. clients. Reliance on the relief is conditioned on advisers committing to a number of undertakings and representations. The information update describes specific documentation that an adviser relying on the Unibanco letters should provide to the staff to facilitate the SEC’s ability to monitor and enforce advisers’ performance of their obligations to U.S. clients. The documentation should include the name of any participating affiliate and the name and contact information of a U.S. agent for service of process on participating affiliates and generally the representations required of the adviser and affiliated adviser in the Unibanco letters. The information update also says such documentation and any amendments should be provided to the staff by email to IMOCC@sec.gov using “Participating Affiliate” in the subject line.
CFPB Seeks Comment on Its Plan for Assessing the Remittance Rule
On March 17, the Consumer Financial Protection Bureau (CFPB) announced that it would conduct an assessment of certain of its regulations related to consumer remittance transfers under the Electronic Fund Transfer Act, Subpart B of Regulation E (Remittance Rule). The CFPB requested public comment on its plan for assessing the regulations, as well as recommendations and other information that may be helpful during the assessment. The CFPB will focus its assessment on two areas: (1) whether the market for remittances has evolved after the Remittance Rule in ways that promote access, efficiency and limited market disruption; and (2) whether the new regulations have brought more information, transparency and greater predictability of prices to the market. The CFPB noted that the assessment is an informational process and not part of the formal or informal rulemaking proceedings. Upon completion of the assessment, the CFPB plans to issue an assessment report by October 28, 2018, and may at a later date consider commencing formal rulemaking proceedings based on its findings.
Federal Reserve Increases Thresholds for BHC Acquisitions
On March 16, the Federal Reserve Board (Fed) approved People’s United Financial, Inc.’s acquisition of Suffolk Bancorp (the “Acquisition”). Before approving such an acquisition, the Dodd-Frank Act requires the Fed to consider the extent to which the proposed acquisition would result in greater or more concentrated risks to the stability of the U.S. financial system. Prior to its order approving the Acquisition, the Fed had stated that an acquisition of less than $2 billion in assets or that resulted in an entity with less than $25 billion in total assets was presumed to not raise material financial stability concerns. In its order approving the Acquisition, the Fed increased these thresholds, stating that, as a result of its recent experience, acquisitions involving less than $10 billion in assets or that result in an entity with less than $100 billion in total assets were not likely to create entities that pose systemic risk to the stability of the U.S. financial system absent evidence that such transaction would result in a significant increase in interconnectedness, complexity, cross-border activities or other risk factors.
Enforcement & Litigation
DOJ Argues That CFPB Structure Is Unconstitutional
On March 17, the Department of Justice (DOJ) filed an amicus brief in PHH Mortgage v. Consumer Financial Protection Bureau in which it argued that the CFPB’s single director structure was unconstitutional and that President Trump should have the power to remove the CFPB’s director without cause. The amicus brief represents a reversal of the DOJ’s previous positon in the case, made in a brief filed earlier by the DOJ under the Obama administration. Last month, the full D.C. Circuit Court of Appeals agreed to hear the case, vacating an earlier ruling by a three-judge D.C. Circuit panel finding the CFPB’s single director structure unconstitutional and permitting the director’s removal at the president’s discretion. Oral argument in the en banc review of the case is scheduled for May 24.
CFPB Enters Consent Order with Mortgage Lender Over Alleged HMDA Violations
On March 15, the CFPB entered into a consent order with a national nonbank mortgage lender that requires the lender to pay a $1.75 million civil monetary penalty to resolve alleged violations of the Home Mortgage Disclosure Act (HMDA). The CFPB alleged that the mortgage lender violated HMDA, 12 U.S.C. § 2803, and its implementing regulation, Regulation C, 12 C.F.R. § 1003.4, by failing to collect and report accurate data on certain HMDA-covered loans (purchase loans, home improvement loans, and refinance loans) between 2012 and 2014. During that time period, the mortgage lender originated more than 190,000 such loans, totaling approximately $38 billion in origination value. View the Enforcement Watch blog post.
CFPB May Focus on Credit Reporting as an Enforcement Priority
On February 28, the CFPB issued its monthly complaint report spotlighting credit reporting complaints (the Spotlight). Two days later, the CFPB issued a Special Edition of its Supervisory Highlights Report, which also focused on credit reporting (the Report), and Director Cordray delivered prepared remarks on the topic the same day. Taken together, these show that the CFPB will likely increase its focus on identified credit reporting problems—the Report states that the CFPB considers the issue “a high priority”—and may herald enforcement actions relating to credit reporting issues in the coming months. View the LenderLaw Watch blog post.
