Is the Office of the Comptroller of the Currency ("OCC") using its recently announced proposed regulations regarding receivership powers to dissimulate its efforts to create a national charter for innovative lenders?

Last week, the OCC proposed a regulation^[1] to implement the basic legal framework for receiverships for any national bank that is not insured by the Federal Deposit Insurance Corporation ("FDIC"). All FDIC-insured national banks that are closed by the OCC are required to have the FDIC appointed as receiver.

The proposed rule notes that the OCC supervises 52 national trust banks it has chartered that are not insured by the FDIC, and it requests comments on the creation of a framework where the OCC would act as a receiver of these trust banks and other OCC-chartered banks that are not insured by the FDIC. The proposal notes that prior to the creation of the FDIC, the OCC conducted receiverships of national banks pursuant to the provisions of the National Bank Act.

It addresses the most common questions that would be applicable in a receivership regime for failed financial institutions and it closely tracks how the FDIC operates as a receiver of failed insured depository institutions. For example, issues such as notice to the public of the appointment of a receiver, how claims are submitted and the priority of how those claims are paid, the powers and duties of the receiver, the source of funds to pay the claims, and the status of fiduciary and custodial assets and accounts all are discussed and comments are solicited with a November 14, 2016 deadline.

Why is the OCC concerned about a new receivership regime when it currently supervises trust banks which, historically, have little risk of failure? Its stated basis for the proposal is twofold. First, because of the recent financial crisis, regulators need to focus on the need for a framework for dealing with faltering uninsured national banks. Second, the OCC states that a receivership framework would provide clarity to market participants as to how they will be treated in a receivership, "be it an uninsured trust bank or another uninsured special purpose bank."

But, trust banks are not risky enterprises and the only special purpose banks that are mentioned by the OCC in the proposal are those that are used to facilitate a consolidation over a limited time frame. 

While the proposal deals exclusively with the proposed receivership framework, the phrase "uninsured special purpose bank" is a critical element of the background narrative in the proposal. The OCC notes that other than being created for a short time to facilitate a consolidation, the OCC rules provide that a special purpose bank can be chartered if it performs "at least one of the three core banking functions, namely receiving deposits, paying checks, or lending money."

Typically, innovative lending entities (also frequently described as fintech entities, marketplace lenders or alternative lenders) do not receive deposits or pay checks, but they do lend, or facilitate the lending of money. Consequently, under current OCC rules, an entity that only lends money could be eligible to receive a special purpose national bank charter from the OCC. 

In March of this year, the OCC published its "Supporting Responsible Innovation in the Federal Banking System: An OCC Perspective"^[2][. Its goal was to solicit public comments to provide the OCC a better perspective on innovations being used by marketplace lenders, so it could develop a framework for identifying and evaluating financial innovation.

In conjunction with and in furtherance of that effort, the OCC now is asking for comments on whether a special purpose charter could be used creatively to deliver banking services. And, it asks whether the proposed receivership framework would be appropriate for dealing with a failed special purpose bank.

Less one be unsure about the OCC's laying the groundwork for a national charter for innovative lenders, in a speech^[3] to an innovative lending conference on the same day that the proposed receivership framework rules were published, Comptroller of the Currency Curry asked whether innovative lenders should be regulated and if so, who should regulate them. He then stated that "To some extent, the conversation about whether there should be a national substantive law or a federal license or charter for marketplace lenders and fintech firms is part of answering the question of 'who' should regulate the activity. If a firm merited a federal bank charter, the question would be resolved as it would be squarely under the primary federal supervision of the OCC."

The question appears to be not if, but when the OCC will issue a national bank charter to an innovative lender. The proposed receivership framework is the first step in that process. Much discussion and rulemaking will occur prior to the issuance of any new type of bank charter. Questions relating to which laws and regulations would be applicable to such entities, safety and soundness considerations and whether such entities could be affiliated with existing insured depository institutions remain to be resolved.

[1] http://www.occ.gov/news-issuances/news-releases/2016/nr-occ-2016-110a.pdf

[2] http://www.occ.treas.gov/publications/publications-by-type/other-publications-reports/pub-responsible-innovation-banking-system-occ-perspective.pdf 

[3] http://occ.gov/news-issuances/speeches/2016/pub-speech-2016-111.pdf