Business and Legal Insights

On December 2, 2016, the Office of the Comptroller of the Currency announced that it will be moving forward with considering applications from financial technology (fintechs) companies to become special purpose national banks. The agency is also currently accepting public comments on its proposed chartering process as detailed in its recently released white paper. So, how did we get here, and what does this mean for fintechs?

Background - The OCC's Initiative to Better Understand Financial Innovation

From online lending platforms to virtual currency firms, fintechs have been changing the way that consumers access financial products and services. Since these emerging technologies have exploded on the financial services scene, financial regulators have been struggling with how to manage these new participants.

The OCC is among the federal financial regulators that have shown an increasing interest in these new market participants. The agency's announcement comes after months of research and discussions with fintech companies, banks, consumer groups, and various other stakeholders. In March of this year, the OCC released a white paper providing its perspective on responsible innovation in the financial services industry. The white paper outlined eight key principles that will guide the agency’s development of its approach to financial innovation regulation.

The OCC also held a public forum in June to obtain feedback from external stakeholders regarding the agency’s views on responsible innovation. Based on the feedback received during the forum, the OCC announced its decision to establish the “Office of Innovation,” which will be responsible for establishing a framework to support responsible innovation in the financial services market. The OCC expects this office to be operational in the first quarter of 2017.

This month, the OCC released a new white paper detailing a list of questions and issues that the agency will be considering as part of the chartering process. The OCC is soliciting public comment on all of the issues and questions raised in the white paper. The deadline to provide written comments to the OCC is January 15, 2017.

What this Means for Fintechs

Although the establishment of a special purpose national bank charter for fintech companies would potentially subject chartered fintechs to the same laws, regulations, examinations, reporting requirements, and ongoing supervision as national banks, the major benefit of a national charter is that it would act to exempt chartered fintechs from various state laws and regulations that require a license to engage in certain types of financial activities or business. Chartered marketplace lenders, for example, would be able to bypass the patchwork of state licensing lending laws, and export the interest rate of their home state to loans made out of state. Chartered money transmitters would also be able to avoid the various state money transmitter licensure requirements.

The proposed national charter, however, would not act to exempt chartered fintechs from state laws entirely. State laws that would continue to apply to chartered fintechs would include state laws on anti-discrimination, fair lending, debt collection, taxation, zoning, criminal laws, torts, and federal and state consumer protection laws aimed at prohibiting the unfair or deceptive treatment of customers.

While details regarding the new charter for fintech companies have not been finalized, you can learn more about the new charter by reading the OCC’s recently published white paper on the issue.

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