The announcement by the Office of Comptroller of Currency that it will allow financial technology (fintech) companies to apply for national bank charters as way of fostering “responsible innovation” has already drawn fire from the New York Department of Financial Services (DFS) and the Conference of State Bank Supervisors (CSBS).  

In their statements responding to the OCC’s announcement, both the DFS and CSBS view the charter as threatening to weaken the states’ role in consumer protection.  In making consumer protection rather than the fostering of innovation their paramount concern, the state regulators appear to be aligned with the CFPB.  Despite the CFPB’s 2012 launch of Project Catalyst, its initiative for facilitating innovation in consumer financial products and services, and repeated claims that it is not attempting to stifle innovation, the CFPB has continued to signal additional regulation and enforcement activity in the fintech space.

We recently blogged about expectations that changes to the CFPB under a Trump Administration will reduce the CFPB’s impact, particularly in the enforcement area.  Faced with a less aggressive CFPB, state attorneys general and financial regulators may be emboldened to ramp up their enforcement activity, with Democratic-controlled states such as New York, Illinois, and California already known for an activist approach likely take the lead.  The DFS and CSBS statements suggest that should the CFPB’s enforcement role diminish in the fintech space, state AGs and regulators will assume the mantle of enforcing the Consumer Financial Protection Act’s UDAAP prohibition using their Section 1042 authority.  In addition, state AGs have direct enforcement authority under several federal consumer protection laws (such as TILA, FCRA and RESPA), and are expressly allowed by the CFPA to bring civil actions against national banks and federal savings associations to enforce state laws that are not preempted.