On June 25, 2020, Acting Comptroller Brian Brooks announced that the Office of the Comptroller of the Currency (the “OCC”) intends to introduce the first in a series of at least two national bank charters for payments companies this fall. This “Payments Charter 1.0” would be a “national version of a state money transmission license” that preempts state licensing requirements and provides companies with a national platform regulated by the OCC. Brooks argues that a national bank charter would reduce the regulatory burden on payments companies operating across multiple state jurisdictions. In his view, national payments platforms are critical to an integrated national economy.
Payments companies providing technology processing services in partnership with OCC chartered banks will be well positioned to benefit from Payment Charter 1.0, especially if such companies have business models that rely on licensing in fifty states.
Brooks anticipates that the OCC will release “Payments Charter 2.0” approximately18 months after releasing “Payments Charter 1.0”. This second charter is likely to give payments companies direct access to the Federal Reserve payment system. The OCC will need to work closely with the Federal Reserve to design a charter that is both legally acceptable to each agency and practical for regulators to monitor and enforce. Brooks makes the legal argument that payments companies chartered by the OCC are entitled to Federal Reserve access because they qualify as national banks “eligible for deposit insurance.” In his view, “eligibility” for deposit insurance is sufficient to trigger Federal Reserve access.
This legal argument is consistent with Brooks’ and the OCC’s longstanding position that the definition of a “bank” includes any entity substantially engaged in lending, deposit taking or payments. That is to say, an entity does not need to do all three activities to be a bank. The Conference of State Bank Supervisors and prominently the New York Superintendent of Financial Services Linda Lacewell, disagree with Brooks’ and the OCC’s approach. According to Lacewell, entities that don’t take deposits are not banks. She points to a 2019 decision in the U.S. District Court of the Southern District of New York blocking the OCC’s fintech charter based on concerns that an OCC had exceeded its authority under the National Bank Act (read more here). While the OCC has appealed this 2019 decision, the ruling’s nationwide prohibition on the fintech charter may effectively prevent the adoption of the proposed national charter for payments companies. Additional judicial scrutiny also can be expected.