As discussed in our recent client alert, in a December 2, 2016 whitepaper, the Office of the Comptroller of the Currency (“OCC”) outlined its authority under the National Bank Act to grant special-purpose charters on a case-by-case basis to financial technology (“fintech”) companies that provide services equivalent to certain traditional banking activities. In the paper, the OCC expressed openness to granting such charters, remarking that “it may be in the public interest to do so.”
On January 9, 2017, Senators Sherrod Brown (D-OH) and Jeff Merkley (D-OR)—both minority members of the Senate Committee on Banking, Housing, and Urban Affairs—released a letter to the OCC identifying the following specific concerns with the OCC’s proposal:
• Charter Shopping. Senators Brown and Merkley question whether the OCC would have authority to grant charters to non-depository companies, given that the OCC’s special-purpose chartering authority is narrowly defined. Because the OCC suggested that fintech companies could choose to provide only certain types of financial services, the Senators criticize the OCC for permitting companies to “negotiate which provisions of a national banking charter they want . . . while avoiding the rules and regulations that would apply to a full-service bank.” The Senators suggest that such “charter shopping” could contribute to another financial crisis, as “lightly-regulated” entities crowd those “subject to more stringent” regulations out of the market.
• Financial Inclusion. The Senators also argue that chartering fintech or other alternative financial services companies could harm underbanked consumers by offering only “a la carte services” that do not promote saving. If these companies do not provide the “social benefits” of traditional banks, the Senators argue, they should not receive reciprocal benefits granted to national banks (such as preemption of certain state laws).
• Consumer Protection. Senators Brown and Merkley further suggest that alternative charters could permit predatory payday lenders to avoid state consumer protection regulations.
• Separation of Banking and Commerce. The Senators argue that granting alternative charters could blur the line between banking and commerce if commercial firms seek such charters. Senators Brown and Merkley point to several potential negative results of chartering commercial firms. In their view, granting these charters could: incentivize commercial firms to offer preferential treatment to their own financial services or products (which might not be competitive); create a conflict of interest between credit decisions of a chartered subsidiary and the interests of its commercial parent; and bring commercial firms under the “scope of the federal safety net.”
The OCC requested comments on its whitepaper by January 15, 2017.