As the Office of the Comptroller of the Currency maintains its focus on granting bank charters to fintech companies, some experts have disrupted the debate about nontraditional bank owners by saying a different agency should be in charge.
The OCC just last month approved LendingClub's bid to
But a growing list of observers now argue that the Consumer Financial Protection Bureau is better suited to charter and regulate fintechs at the federal level, given the bureau's mission of preventing consumer harm.
The new wrinkle sets up a potential turf war between the two agencies. A CFPB task force
“The OCC is ill suited to license fintechs,” said Dan Quan, managing partner at Banks Street Advisory and a former head of the CFPB's fintech office. “The biggest risk is really conduct [such as] consumer harm."
Even though Brooks could depart the OCC soon, with President-elect Joe Biden set to take office on Jan. 20, the agency has shown no signs of abandoning its interest in fintech banks.
On Tuesday, Brooks published an op-ed in the Financial Times suggesting that the government should consider allowing bank charters for "open-source software that manages deposit-taking, lending, or payments, if it doesn’t have officers or directors?"
Some have raised the possibility that Brooks could try to issue a quick approval for Figure before Jan. 20. The San Francisco-based lender, which offers home loan refinances, home equity lines of credit and personal loans, is seeking a novel charter that would enable it to accept uninsured deposits — instead of insured deposits — and therefore evade certain regulatory requirements imposed on other banks. But the application has drawn
“There is no prohibition against the agency continuing to act on licensing applications,” an OCC spokesman said. “The agency continues to conduct its regular business.”
But some experts suggest that policymakers may want to rethink letting the OCC oversee fintech banks due to the perception that the national bank regulator did not sufficiently hold banks responsible for consumer compliance in the years leading up to the 2008 financial crisis.
“Every company wants a level playing field," said Richard Gottlieb, a partner at Manatt, Phelps & Phillips. "If there were a fintech charter for the CFPB, it would establish guardrails that companies can operate in and would understand the full extent of what they can and cannot do.”
Incoming administration's plate 'is already full'
The CFPB task force’s recommendations, while nonbinding, further complicated the continuing debate about the appropriate regulatory framework for fintech companies. Giving the CFPB chartering and regulatory authority for fintechs would require an act of Congress and support from the Biden administration.
Many experts say the Biden administration's views on fintech charters remain opaque.
“The Biden administration has a lot of other priorities right now,” said Henry Coffey, managing director and banking analyst at Wedbush Securities.
Quan agreed that fintech charters are low on the list of pressing issues facing the incoming administration.
“Their plate is already full,” Quan said of the Biden administration.
Yet he agreed with the task force’s view that fintechs should be regulated by the CFPB because they pose more risks to consumers than to the federal banking system.
"This is the CFPB’s wheelhouse," Quan said. "Most fintech firms do not pose significant safety and soundness risks, as most of them do not take deposits.”
But Brooks
He cited the Dodd-Frank Act’s separation of chartering authority and prudential supervision from the enforcement of consumer protection as a rationale for the OCC to move forward with charter approvals.
“Under the law, the agency that grants national charters to companies engaged in lending, payments, or deposit-taking is the Office of the Comptroller of the Currency, which has the responsibility for prudential supervision to ensure these chartered institutions operate in a safe, sound, and fair manner,” Brooks said in a statement last week.
But the CFPB’s task force stated that Congress should “authorize the bureau to issue licenses to non-depository institutions that provide lending, money transmission, and payments services.”
The group also said the CFPB should consider the benefits and costs of preempting state law where conflicts can “impede the provision of valuable products and services, such as the regulation of FinTech companies engaged in money transmission.”
New battle for the states?
Kraninger said the task force’s recommendations are in effect a referral to Congress “for legislative action." However, giving the CFPB authority over federally chartered fintechs could set up a new battle between the bureau and state regulators, which now have authority over nonbank fintechs with state licenses.
Still, if OCC approves Figure's application, it could shine a brighter spotlight on the question of which agency ultimately is the best-suited to regulate fintechs.
"If [fintechs] are as big and cool as they think they are, and if they are going to take on this much market share over time, then these companies need to be regulated from the consumer point of view,” said Coffey. "When you look under the hood and at the advertising, some of these [fintech] companies are offering great value propositions — and some are not."
But state regulators hope that, should Congress decide to give the CFPB authority over fintechs, the consumer bureau would work in coordination with the states and not undermine them.
While Congress did not give the CFPB licensing authority in the Dodd-Frank Act, it built into the agency's DNA robust interaction with the states, noted John Ryan, president and CEO of the Conference of State Bank Supervisors.
“At this point where the states are making so much progress, to try to sideline them is particularly disturbing,” Ryan said.
