Some regulatory agencies, such as the Consumer Financial Protection Bureau and Federal Reserve Board, appear ripe for more congressional criticism and even curbs to their authority under the incoming Trump administration. But one may be in relatively good position to have its authority expanded: the Office of the Comptroller of the Currency.
The OCC has stayed under the radar and avoided the political backlash aimed at other regulators while also emerging as a new leader in the fast-growing area of fintech regulation. The OCC's focus on innovation and its largely pristine image among lawmakers could lead to greater chartering authority and — if the CFPB continues to lose favor — more responsibility to oversee consumer rules.
The OCC's innovation initiative dates to August 2015 when Comptroller Thomas J. Curry announced the OCC's intention to develop a comprehensive framework to improve the OCC's ability to understand innovation in the financial services industry. One of the OCC's goals in this initiative was to help national banks and federal savings associations thrive in the face of increasing competition from the fintech sector.
In March 2016 the OCC released a white paper on responsible innovation that attracted considerable (and favorable) attention throughout the banking and fintech industries. The OCC continues to foster discussion about innovation through a variety of efforts. The agency's openness and willingness to engage in frequent and public discussions have been in stark contrast to the CFPB's insular and almost secretive approach to regulation. As a result, the OCC has built considerable goodwill with the banking industry.
The CFPB has tried to have a voice on issues related to innovation. In early 2016, the bureau issued a policy statement on providing "no-action" letters (NALs) for innovative financial products or services, in a sign that the CFPB may withhold enforcement for certain startup firms. But the CFPB's policy statement has been roundly criticized as being limited in value and for exposing companies to enforcement risk if they dare ask for a NAL. For example, the CFPB would only consider a NAL request if the underlying product or service was one that the CFPB feels carries "substantial" consumer benefits, which meant that the CFPB would likely not respond to the most pressing and sensitive questions from politically disfavored industries (e.g., from a payday lender).
Also, anyone requesting a NAL had to submit detailed information about the product or service in question, which many companies believe would only expose them to an investigation or enforcement action. Finally, the NAL process provides no immunity against private litigation or enforcement actions by other federal and state government agencies. By contrast, the OCC's innovation initiative is perceived as more credible; companies are not suspicious that the initiative will expose them to an enforcement action.
The OCC has also enhanced its reputation—at least with Congress—by not using aggressive enforcement tactics favored by the CFPB. It is hard to overstate the degree of anger that Republicans in Congress have toward the CFPB as an institution. That anger stems from the partisan nature in which Dodd-Frank was enacted and the CFPB was established as well as the consensus among Republicans that the broad jurisdiction, unlimited rulemaking authority and unaccountability of the CFPB made it an affront to the Constitution or at least principles of good government.
By contrast, the OCC was given the portfolio of the Office of Thrift Supervision when the OTS was abolished as part of Dodd-Frank and the OCC is perceived to have been a trustworthy steward of that portfolio. And, the OCC has cooperated with the CFPB in numerous enforcement actions against national banks under the OCC's supervision, so the OCC cannot be accused of "going easy" on the banks it supervises. In fact, some of the OCC's enforcement and regulatory efforts, such as its cooperation in Operation Choke Point and its campaign against deposit advance loans, came perilously close to CFPB-style extralegal regulation and (at least in this author's view) mar an otherwise outstanding record. However, the OCC has at least largely steered clear of overtly partisan policymaking.
As a result of its general restraint and professionalism, the OCC and the comptroller are in the good graces of a Republican Congress without having to do any post-election spinning or pivoting.
The ideas circulating around about how the OCC would address fintech include the concept of new classes of charters for nonbank lending and payments companies. For example, if a payments company can get a single national charter for payments activities similar to the "e-money" charter available in the European Union, it can avoid the tremendous financial costs and regulatory burdens of complying with 50 state money transmitter regimes. The national bank charter is a proven model featuring the advantages of a single regulator for a national market: federal pre-emption. Presumably, an OCC charter for nonbank payments companies would be modeled after the national bank charter and carry similar pre-emption benefits.
A similar cost and regulatory savings could be achieved by lending companies using a similar national charter to make loans in all 50 states. Such national charters would foster innovation, growth and competition in the fintech sector and would likely find bipartisan support in Congress. It is the OCC that has positioned itself as the regulator of choice for these new federal fintech charters, again illustrating its foresight and good luck in starting this initiative well in advance of the presidential election.
Further adding to the appeal of the OCC's new fintech charters is the virtual certainty that the various states will significantly increase the aggressiveness of enforcement actions and penalties against financial companies, making state charters even less appealing. This trend will be especially pronounced in "blue" states like California, Illinois and New York that perceive themselves as alienated from a Republican administration and Congress and that perceive a coming void in consumer protection due to the increasing probability that the new administration will replace the CFPB's director and substantially limit its power.
At a minimum, the state regulatory environment will be challenging for financial services companies going forward and I think there will be a scramble to change to a federal charter where it is possible to do so. This megatrend will add to the demand for an OCC charter and reinforce the OCC's position as the regulator of choice. Some community banks may lobby against these new fintech charters, but I suspect that such efforts will be viewed as being on the wrong side of history.
In summary, the OCC has been doing several important things right and it looks like it was doing so at exactly the right time.
Daniel Wheeler is a banking and regulatory fintech partner at the Bryan Cave LLP law firm.
