The departure of the OCC’s head in the midst of a heated battle with state regulators has significantly increased the probability that its plans to grant special purpose national bank charters to fintech firms will fail in their current form
In December 2016, GlobalData wrote about the Office of the Comptroller of the Currency’s (OCC’s) plans to make it simpler for fintech firms to operate across the US by allowing them to apply for special purpose national bank charters. If the proposal is enacted, fintechs will have to comply with just one set of regulations to offer their services nationally, rather than a different set of laws for each of the 50 states.
However, the OCC’s seemingly straightforward proposal has sparked a hostile response from several parties, including state regulators and politicians, on the grounds that it will undermine state-level efforts to regulate financial services. The New York State Department of Financial Services has been particularly vocal, stating that such plans are “irresponsible” as they disregard state-level legislative expertise and experience. It has also asserted that the imposition of a new federal regulatory regime will undermine state laws preventing usury, discourage small business innovation, and lead to the creation of non-bank institutions that are too big to fail.
The Conference of State Bank Supervisors has also weighed in, claiming that the OCC’s plans amount to an unlawful expansion of its chartering activity. In April 2017 it filed a complaint with the US District Court for the District of Columbia, asserting that the OCC has exceeded its authority by extending regulatory approval to non-deposit-taking providers. The filing further claims that the proposal will weaken state consumer protection measures, harm markets and innovation, and raise the risk of high-profile fintech failures.
Further opposition has been voiced by legislators and consumer advocacy groups, among others. The OCC is thus fighting a war on multiple fronts, and its position has been weakened by the planned departure of its head, Thomas Curry, who was the main advocate of the plan.
This dispute highlights the political problems that can occur when multiple agencies have overlapping regulatory responsibilities. Both sides can claim justification: the OCC is right that a single, nationally applicable legal framework will make it far easier for fintechs to scale up their operations to a US-wide level, while the state regulators are right to worry that an inadequately designed framework could lead to consumer detriment and greater risk.
Although the strength of opposition to the OCC’s plan is likely to kill it off, in the longer term it is highly likely that some form of federal regulation will be enabled. The current, fragmented system is unsuited to the needs of non-bank firms that want to operate across state borders, and given the increasing size and influence of the fintech sector, it is only a matter of time before they are fully integrated into a national regulatory regime.