The Office of the Comptroller of the Currency (“OCC”) announced yesterday that a nondepository financial technology (“fintech”) company that engages in a core banking activity, such as paying checks or lending money, can now apply for a special purpose national bank (“SPNB”) charter. This announcement followed shortly after the release of the Treasury Department’s report on nonbank financials, fintech, and innovation, which recommended that the OCC move forward with the charter.
Comptroller of the Currency Joseph M. Otting stated that allowing fintech companies to apply for special purpose national bank charters “helps provide more choices to consumers and businesses, and creates greater opportunity for companies that want to provide banking services in America.” Comptroller Otting concluded that “companies that provide banking services in innovative ways deserve the opportunity to pursue that business on a national scale as a federally chartered, regulated bank.”
The OCC stated that its decision is consistent with broader government efforts to promote economic opportunity and supports innovation in financial services. The OCC has made clear that fintech companies with SPNB charters will not be authorized to accept FDIC-insured deposits. The OCC emphasized that every application by a fintech company for a SPNB charter will be evaluated on the basis of its facts and circumstances and that fintech companies that become special purpose national banks initially will be subject to heightened supervision initially, similar to any de novo bank.
A SPNB charter would be useful in providing a more uniform regulatory framework instead of the current patchwork of state licensing and rate cap regulation that applies to many fintech companies. The charter also may enable a fintech company to gain direct access to the payment system, subject to the Federal Reserve’s willingness to grant such access. A company that obtains a SPNB charter also may have less of a need to enter into a partnership with a bank depending on its business model.
An application for a SNPB charter generally will be processed like other de novo national bank applications in four phases. A potential applicant first engages with the OCC in formal and informal meetings to discuss the proposal in the prefiling phase. After the prefiling phase, the fintech company will submit a complete application as part of the filing phase. The application will be subject to a comment period during which the OCC will accept and consider comments from the public regarding the fintech company’s application and proposed business plan. The application will include, among other information and documents, the business plan, capital and liquidity analysis, financial inclusion plan, and contingency plan.
During the next phase, which is the review phase, the OCC will review and analyze the application to assess whether the proposed bank satisfies the criteria for approval, namely (1) whether the proposed bank will have a reasonable chance of success; (2) whether the proposed bank will be operated in a safe and sound manner; (3) whether the proposed bank will provide fair access to financial services; (4) whether the proposed bank will treat customers fairly; (5) whether the proposed bank will comply with applicable laws and regulations; and (6) whether the proposed bank will foster healthy competition. Finally the application will enter the decision phase, and the OCC will decide first whether to grant a preliminary conditional approval for the proposed bank to begin organizing and second whether to grant a final approval for the bank to open for business to the public.