On January 17, 2017, Maria Vullo, the Superintendent of the New York State Department of Financial Services (NY DFS) sent a letter to the Office of the Comptroller Currency (OCC), opposing the OCC’s proposed special purpose charter for Fintech companies. The NY DFS adds to the existing resistance by state regulators to the charter, embodied by the Conference of State Bank Supervisors (CSBS). The CSBS questioned the OCC’s authority to issue a charter, and raised, among other things, the negative effect the proposed charter would have on states’ ability to protect their consumers. In addition, Democratic U.S. Senators Sherrod Brown and Jeff Merkley also sent a letter to the head of the OCC, voicing their concerns with the proposed charter.
The NY DFS echoed the Senators’ concerns regarding the OCC’s lack of authority to issue these charters. It argued that the OCC exceeded its authority under the National Bank Act because technology is not a sound criterion for regulation as a practical matter, and moreover, technology is not a criterion that the OCC can use to regulate an entity. The letter also argued that the new charter would encompass entities never before regulated under the National Bank Act (but that the NY DFS has regulated for years).
In addition, the NY DFS posited that the proposed special purpose charter will stifle innovation and encourage only large institutions to thrive. It pointed to the financial collapse and the Great Recession as an example of what could happen when large, national bank entities took over. The NY DFS argued that the recession was caused in part by “the unleashing of subprime lending through the vehicles of national banks” and equated a similar threat from the elevation of Fintech companies to national bank stature.
The NY DFS is, at bottom, trying to maintain its ability to regulate the financial industry in New York. It does not want to provide companies with a mechanism (the national bank charter) that would allow them to avoid New York consumer protection laws through preemption. As an illustration, it points to attempts by online lenders to avoid NY usury laws. The letter argues that “[g]iving federal bank charters to online lenders would create a race to the bottom where online lenders could set up shop in a state with lax consumer protection rules and flood more consumer protective states with dangerous, high-interest loans.”
Despite these strong statements from states like New York, it seems unlikely that the OCC will be convinced that it does not have the authority to grant special purpose charters to Fintech companies. The wildcard is the new Administration, which has promised to further deregulate the financial markets, and which might see this Fintech proposal as an attempt to increase regulation. Given the Democratic Senators’ comments regarding the OCC’s lack of authority on that issue, and the increasingly partisan atmosphere between the federal and state governments, this could lead to increased scrutiny of the OCC’s actions, and delay or shift its current proposal. It is too soon to tell what impact this politicization of the proposal will have, although it is likely that there will be increased scrutiny on the OCC and intense scrutiny for the charters (if any) it eventually grants.