Despite having the chance to apply for banking licenses with the Office of the Comptroller of the Currency, many online lenders are proceeding with caution.
According to Reuters, the OCC announced last month it would accept applications for banking licenses from online lenders such as LendingClub and OnDeck Capital, which do business outside the traditional banking system. The lenders could then operate nationwide under one banking license rather than dealing with a variety of state-specific regulations.
But while FinTech executives asked for the license and are in favor of the OCC’s decision, none have applied for a charter yet.
“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, chief executive of Lendio, a small-business lending platform.
An OCC spokesman Bryan Hubbard explained that this is “just one option” for these online lenders, and that “the decision was made to support innovation, promote economic opportunity, and provide greater choice to consumers and businesses.”
One major factor holding FinTech companies back: Many believe the charter will wind up in a legal battle between the federal government and states. The New York Department of Financial Services (NYDFS) and the Conference of State Bank Supervisors (CSBS) already challenged the OCC in 2017, when the U.S. regulator was merely considering FinTech charters. Those suits were dismissed as premature — but both parties could file suit again and have said they are weighing their legal options.
For its part, the OCC said it has the legal authority to issue such charters.
“I would expect that challenge to pick up where it left off,” said Keith Noreika, a partner at the law firm Simpson Thacher.
And although a legal battle won’t prevent companies from applying for the charter, they will most likely wait until any issue is settled.
“It could percolate all the way to the Supreme Court,” said Noreika.