Bank Regulation

State Regulators Sue To Block FinTech Charters

In the latest salvo over awarding national bank charters to FinTechs spanning tech upstarts across online lending and various payments functions, the Conference of State Bank Supervisors (CSBS) filed suit late last week against the Office of the Comptroller of the Currency (OCC) over the latter’s plan to award those charters.

The suit, filed in the U.S. District Court for the District of Columbia, contends that, as noted in a statement from CSBS President and CEO John Ryan, “common sense and the law tell us that a nonbank is not a bank. Thus, CSBS is calling on the courts to stop the unlawful, unwarranted expansion of powers by the OCC.”

Under the terms of the proposed granting of charters, these FinTechs would be able to operate across the country without having to be licensed on a state-by-state basis.

Reuters reported last week that, according to OCC spokesman Bryan Hubbard, the OCC does indeed have the authority to issue the aforementioned charters. In his own remarks, he said that “state laws that address anti-discrimination, fair lending, debt collection … would also apply to special purpose national banks. State laws that prohibit unfair or deceptive acts or practices that address concerns such as material misrepresentations and omissions about products and services … also generally apply to national banks.”

In an interview with PYMNTS conducted via written exchange in the wake of the new suit, Margaret Liu, CSBS senior vice president and deputy general counsel, said that the FinTech charter would render consumers vulnerable. The time to file suit is now, said Liu, noting that previously, the OCC claimed it had not made a final decision on moving forward. At the end of July this year, the OCC confirmed that it would indeed move forward with this nonbank FinTech charter.

As she told PYMNTS, “state regulators are ‘boots on the ground’ consumer protection regulators with a mandate to enforce state and federal consumer protection laws. State regulators see problematic trends early and are in touch with local markets in a way that a distant regulator in Washington D.C. can’t be. The FinTech charter preempts all of this authority and runs roughshod over this responsibility of state regulators.”

And against that backdrop, she added, if failures do mark the FinTech landscape, because the charter serves as what she termed a “federal endorsement” of these companies and their business model, “as well as a stake in preventing its failure,” the ultimate tie is one to taxpayers. That tie is established, Liu maintained, through the establishment of a special resolution mechanism within a bureau of the Treasury Department.

“History has shown that it’s incredibly difficult to divorce a federal charter from the federal safety net and this is no exception,” she said. Asked by PYMNTS how FinTechs might be allowed to compete with banks or come to market in the absence of a charter, she stated that “we have a very diverse and competitive financial services marketplace today. Many companies that call themselves FinTechs are — and have been — state-licensed and state-regulated today.”

Such regulation “includes requirements for licensing, net worth, financial safety and soundness, consumer protection, cybersecurity, and BSA and anti-money laundering compliance … a federal charter is the exception, not the rule in our economy,” said Liu, who added that “the federal government’s powers are limited in a way that state government powers are not. States have a broad police power and are able to use that power to act quickly [in response to] emerging issues for consumers and regulated industries.”

Payday Lending Makeover?

As reported by various sources late last week, the Consumer Financial Protection Bureau (CFPB) said that it will push to change rules that are in place that would curtail payday loans.

The Wall Street Journal reported that there will be a formal reopening of the regulation early next year, as the new payday regulations are set to go into effect next August.

Under revision will be what the Journal termed the “core and most-stringent aspect” of the rule that is already in place — namely, that payday lenders ensure that their borrowers can pay the loans back. That litmus test seeks to determine if borrowers can still meet their living expenses and also carry and pay existing payday loans.

The payday lending rules apply to auto title and payday loans that are less than or up to 45 days.

Said the CFPB via statement last week, the “vetting” requirement would be targeted for revision, and noted that as the rule stands and would be implemented would “have much greater consequences” for both consumers and industry.

The rule has been opposed by the short-term, payday lenders and in turn embraced by banks, which have said they are looking to come into the short-term lending arena. Beyond those stakeholders, Rebecca Borné, who serves as policy counsel for the Center for Responsible Lending, said that “the predatory lending business model relies on a borrower’s inability to repay their loans.”

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