In an opinion piece published in American Banker, Comptroller of the Currency Joseph Otting asserts that the decision by the Office of the Comptroller of the Currency (OCC) to begin accepting applications for special purpose national bank (SPNB) charters from fintech companies “promotes innovation, gives consumers and businesses greater choice and creates economic growth and opportunity.”
Otting criticizes the recent decisions by the New York State Department of Financial Services and the Conference of State Bank Supervisors to renew their litigation challenges against the OCC by arguing that the OCC’s decision is also favorable for America’s dual banking system, and that state regulators are trying to limit consumer and business choice “in a way that harms the dual banking system and the citizens it serves.” Otting highlights that the United States since 1863 has benefited from a dual banking system, which provides companies interested in conducting the business of banking with the choice of operating via state licenses and charters or applying for federal charters and operating nationwide. “Each option has unique advantages, and prospective banks can choose based on their business strategies. That system allows the greatest variety of choices for consumers and businesses and has the positive benefit of increasing competition,” he states. Otting further asserts that his decision to exercise the OCC’s authority to consider national bank charter applications from fintech companies engaged in the business of banking “maintains parity with options already available in certain states. An example of similar actions taken at the state level include New York’s recent decision to license two cryptocurrencies.”
Otting also provides counterarguments to the three main challenges raised by critics of the OCC’s decision to accept SPNB applications, all of which he asserts “are without basis.”
First, with respect to the argument that national charters for fintech companies undermine consumer protection and will pave the way to widespread predatory payday lending, Otting asserts that this challenge is wrong in large part because the consumer protection regime has undergone significant changes since the financial crisis. The Dodd-Frank Act led to creation of the Consumer Financial Protection Bureau (CFPB), which has broad authority to write rules that apply to banks and nonbanks. In addition to OCC supervision, the CFPB would be able to supervise fintech companies that become a national bank with assets that exceed $10 billion. Otting also states that it is an incorrect assumption to state that all state consumer protection laws would cease to apply when a company becomes a national bank. For example, he notes that state laws that address anti-discrimination, fair lending, debt collection, taxation, zoning, crime and torts all generally apply to national banks and would also apply to SPNBs. “Additionally, state laws that prohibit unfair or deceptive acts or practices that address concerns such as material misrepresentations and omissions about products and services in billing, disclosure and marketing materials also generally apply to national banks,” he states. The Comptroller also points out that state attorneys general have the legal authority to bring an action in court against a national bank to the extent that a state law prohibiting unfair or deceptive acts or practices applies to a national bank.
Second, with respect to the argument that state regulators are better suited to supervise financial innovation, Otting recognizes that many states are “well-resourced and have professional experienced staff who perform their jobs well,” but asserts that state law, state requirements, and state supervision differ substantially. As a comparison, Otting emphasizes that the OCC has resources to support “consistently robust supervision from year to year, bank to bank, without being affected by budget shortfalls, revenue pressures or politics,” in addition to having a long history of supervising banking technology and innovation. In particular, Otting notes that the OCC’s national perspective “informs its oversight, allowing companies to benefit from broad industry-wide perspective as well as in-depth on-site knowledge and expertise.”
Third, with respect to the third argument concerning legal authority, Otting asserts that the OCC has broad authority, pursuant to the National Bank Act, to grant charters for national banks to carry on the “business of banking.” He concludes that because the OCC has interpreted the “business of banking” to include any one of the three core banking functions of receiving deposits, paying checks or lending money, performing any one of these three activities is sufficient to be engaged in the “business of banking.”
In Comptroller Otting’s view, the complaints and criticism regarding the OCC’s decision amount to attempts by a few large states to defend their turf and licensing revenue “at the expense of economic opportunity for others.” According to Otting, “[w]hat is masquerading as concern for the health of the nation’s banking system is really a protectionist effort to set federal standards and limit competition for state institutions.” He compares these latest challenges to the criticisms posed against the effort to promote interstate branching and banking in the early 1990s, which was affirmed by Congress and the courts.
The Comptroller notes that no one knows how many fintech companies will seek to become a national bank. “When fintech companies discover the expectations for capital, liquidity, consumer protection, financial inclusion and contingency planning, many realize that a federal charter may not be in their future. Many will choose to continue operating at the state level, provide services to banks and consumers directly or pursue partnerships or other business combinations with banks, as they do today,” he states. For those fintech companies that choose to pursue the SPNB charter, Otting states that the OCC “welcome[s] the innovation and competition they bring that will provide more choice and promote improving banking products and services that benefit consumers, businesses, and communities across the nation.”
Otting also notes that, contrary to some reports, interest in the charter “remains robust,” and the OCC expects to receive multiple applications from fintech companies by the end of the year.
