The dispute over the Office of the Comptroller of the Currency‘s (OCC’s) national bank charter, which became available to FinTech firms last year, has reportedly caused technology conglomerates to shy away from a tool that aims to provide nonbank firms with a more streamlined way to operate on a national level. The OCC held meetings with technology conglomerates Google, PayPal and others about the possibility of bank charters for the firms, reports in American Banker said on Monday (June 16).
Citing unnamed sources, the technology firms approached the OCC about obtaining the bank charter, a new mechanism offered by the OCC aimed at making it easier for FinTech firms to enter the banking market and promote competition for customers. The charter allows for these companies to operate on a national level, rather than having to obtain individual state-level licenses.
However, reports noted that the companies ultimately decided against pursuing a national charter, fearing that doing so might jeopardize their relationships with state-level regulators, particularly in the context of state lawsuits filed against the OCC over its authority to create such a national-level bank charter.
Thomas Curry, the OCC comptroller who first proposed the idea for a charter in 2016, according to reports, led the OCC to meet with the technology and FinTech conglomerates as it developed the idea.
“Technology-based products and services are the future of banking and the economy,” Curry said at the time.
The proposal was met with early backing from the banking, FinTech and alternative lending community. American Bankers Association President and CEO Rob Nichols applauded the idea in 2016, telling reporters that it would be a way to provide federal oversight of online lenders.
“Maintaining high standards is the best way to ensure customers have access to the best financial products and services,” Nichols said.
Yet, the charter proposal also saw early criticism, particularly from the Independent Community Bankers of America (ICBA), which said in 2016 that it had “serious” concerns.
“While [the] ICBA supports [the] oversight of these unregulated financial firms, a FinTech charter poses risks to taxpayers and the financial system by endowing these nonbank companies with a federal bank charter,” said ICBA President and CEO Camden R. Fine in a 2016 press release.
With the introduction of states’ legal disputes of the charter, FinTech and technology firms are apparently struggling to see the value in the controversial tool.
Tech Giants Step Back
Multiple sources told American Banker that executives from Google and PayPal subsequently held “exploratory conversations” with the OCC on the new charter and evolving regulation, as well as how these companies would continue to operate within the current regulatory landscape. PayPal and the OCC declined to comment, while Google did not respond to the publication’s requests for comment.
Reports noted that no FinTech or technology conglomerate has ever formally filed an application for the bank charter since the option became available nearly one year ago, with state-level regulators filing legal action against the OCC. The Conference of State Bank Supervisors and the New York State Department of Financial Services have each filed lawsuits against the OCC, accusing it of reaching beyond its jurisdiction with the creation of the national charter. Technology conglomerates like PayPal and Google likely fear being named in those lawsuits, should they choose to pursue a national charter license.
Curry, now a partner at Nutter McClennen & Fish, told American Banker that the companies “don’t want to jeopardize” the network of state-level licenses they have already obtained, “especially if it’s unclear where the [national bank charter] litigation will end up.”
One month after the OCC began accepting charter applications, Reuters reported that alternative and marketplace lenders —including LendingClub and OnDeck Capital — were similarly skeptical about a national charter.
“You’re going to have a bunch of lenders sitting around waiting. ‘I’m not going to go first; you go first,” said Brock Blake, CEO of small business lending platform Lendio, in an interview with Reuters at the time. The report added that much of the hesitancy similarly stemmed from FinTech firms’ concerns over legal disputes against the bank charter.