August 24, 2018
Authored by: Barry Hester and Ken Achenbach
On July 31, 2018, the OCC announced that it had finalized parameters for its new limited-purpose financial technology national bank charter and is ready to begin taking applications. This release follows several years of formal deliberation on the topic and coincided with the release of a 222-page U.S. Treasury report on innovation. Industry reactions have been wide-ranging – will this level the playing field or usher in a FinTech “apocalypse“?
Highlights of the OCC notice include:
- Designation of the charter type as a national bank. Like its other special-purpose charters, including the non-depository trust company or the credit card bank, the FinTech charter will be a “national association” in the National Bank Act sense of the term. As the saying goes, membership will have its privileges (and burdens): capital requirements, examinations, and federal preemption of certain state laws.
- Eligibility for qualified applicants that plan to conduct activities “within the business of banking.” Pursuant to existing OCC regulations, a limited-purpose national bank not engaging in fiduciary activities “must conduct at least one of the following three core banking functions: receiving deposits; paying checks; or lending money.” In its FinTech charter announcement, the OCC notes that it “views the National Bank Act as sufficiently adaptable to permit national banks to engage in traditional activities like paying checks and lending money in new ways. For example, facilitating payments electronically may be considered the modern equivalent of paying checks.”
- A requirement for a commitment to “financial inclusion.” We will see how this element is administered. In theory it provides a non-depository parallel to the Community Reinvestment Act (“CRA”).
- Publication and comment period. Just as for other types of national banks, applications will feature newspaper publication requirements and will be generally subject to public review and comment.
The OCC stated that its decision to open the door for this new form of national bank “is consistent with bi-partisan government efforts at federal and state levels to promote economic opportunity and support innovation that can improve financial services to consumers, businesses, and communities.” Comptroller Otting added:
Providing a path for fintech companies to become national banks can make the federal banking system stronger by promoting economic growth and opportunity, modernization and innovation, and competition. It also provides consumers greater choice, can promote financial inclusion, and creates a more level playing field for financial services competition.
Treasury’s report is consistent with these themes, noting, “A forward-looking approach to federal charters could be effective in reducing regulatory fragmentation and growing markets by supporting beneficial business models” and that the OCC should proceed with “thoughtful consideration” of FinTech charter applications. Treasury also calls out specifically the need for updating regulations that relate to data aggregation, for addressing those which have become “outdated” in light of technological advances (e.g., in the mortgage lending and servicing space, according to Treasury), and for a regulatory approach that enables “responsible experimentation” in the financial sector.