U.S. Comptroller of the Currency Thomas Curry answers a question during
the Reuters Financial Regulation Summit in Washington May 16, 2016. REUTERS/Carlos Barria
Online credit companies and paperless lenders would be able to get federal
charters to do business nationwide under a plan outlined on Friday by
a U.S. banking regulator.
The Office of the Comptroller of the Currency (OCC), the main regulator
for federal banks, said it hoped offering a charter for "fintech"
companies would spur banking sector innovation.
"Technology-based products and services are the future of banking
and the economy," OCC director Thomas Curry said, outlining the proposal
in a speech at the Georgetown University Law Center.
The move might change the regulatory landscape for online lenders such
as On Deck, Kabbage Inc and Quicken Loans that now operate under a variety
of state licenses.
The OCC will allow fintech companies to operate nationally through a special-purpose
charter. Curry said his agency is open to discussing specific terms of
what a charter would entail.
Because they do not accept customer deposits, fintech companies are not
subject to many federal banking laws.
On Friday, Curry said the tailor-made charters for fintech companies would
help those lenders reach underserved communities and uphold consumer protections.
Ken Rees, chief executive of subprime online lender Elevate, said his firm
supported the OCC's efforts. "Given that so much fintech innovation
has gone to help give credit to people who already have it, it's important
that the needs of the truly underserved are taken into account," he said.
Curry said companies obtaining a fintech charter would be "examined
regularly and held to the high standards the OCC has established for all
federally chartered institutions." He said worldwide investment in
the fintech industry has grown in the past five years from $1.8 billion
to $24 billion.
Online lenders and other fintech companies have encroached on traditional
banking services in recent years with lower overhead and less paperwork.
Banks and other established institutions have complained that lack of
federal oversight gave online lenders undue competitive advantages.
The American Bankers Association welcomed the OCC’s pledge to hold
fintech companies to high standards.
“Maintaining high standards is the best way to ensure customers have
access to the best financial products and services,” said Rob Nichols,
the trade group's president and chief executive.
The Independent Community Bankers of America said fintech regulations "should
be no less stringent than that which applies to insured depository institutions".
New York State Department of Financial Services Superintendent Maria T.
Vullo said in a statement her agency opposed "any effort to federalize
what states have been doing – and doing well – for over a
century." Vullo said any federal fintech regulatory framework would
"be irresponsible if it were to ignore the states’ historical
role and longstanding expertise in this arena".
Regulators around the world have ramped up initiatives aimed at better
understanding and supporting innovation in the nascent industry. Britain’s
Financial Conduct Authority is widely seen as among the most active financial
watchdogs, launching a special unit more than two years ago to assist
young companies in the fintech sector.
“Federal fintech charters would bring the United States in line with
other progressive fintech countries like Australia, the U.K. and Singapore,”
said Sam Taussig, head of government affairs at online small business
lender Kabbage.
Unlike other financial sectors that view regulation as a threat to growth,
fintech firms have generally welcomed more attention from regulators as
a means of legitimizing their businesses.
“This is a reminder that strong regulation can be a beneficial thing,
not only for consumer protection but also from the prospective of entities
that seek out these charters, as it gives them legitimacy,” said
Kevin Petrasic, a partner at law firm White & Case in Washington.
Patrick Rucker and Anna Irrera, "U.S. regulator clears way for online
lenders to have national charter" REUTERS, December 2, 2016. Accessed
via: http://www.reuters.com/article/us-usa-banks-fintech-idUSKBN13R1TQ