OCC chief, N.Y. regulator dig in on fintech chartering, preemption

WASHINGTON — Acting Comptroller of the Currency Brian Brooks and New York State Department of Financial Services Superintendent Linda Lacewell traded barbs Wednesday in a perpetual struggle between federal and state regulators over the dual banking system.

In remarks during a livestreamed event hosted by the Cato Institute, Brooks took issue with, among other things, the view by some states that their laws provide better protection to consumers. He said some aggressive state laws to restrict interest rates have the effect of “rationing” credit.

“We want banks to be able to export their own fixed interest rate. We want there to be preemption, because without it, the parochial interests of individual states, acting under the belief that they're protecting people, are in fact preventing those same people from accessing credit,” Brooks said.

“If you believe as I do that more credit and more risk-taking leads to more dynamism and growth in the economy, you don't want credit to go away, which is what those kinds of rationing state laws tend to do,” Brooks continued.

Brooks's remarks, which were followed at the same event by an appearance from Lacewell, came against the backdrop of New York state's legal challenge of the Office of the Comptroller of the Currency's special-purpose fintech charter. Lacewell's department prevailed in the federal case, which is now pending an appeal. State regulators have also protested Brooks's recent statements that he wants the OCC to offer a payments charter.

Lacewell said the New York State Department of Financial services, unlike the OCC, has explicit authority to charter financial institutions that do not accept federally insured deposits.

“We want responsible innovation. I do think it’s possible and, by the way, we have to do it, because right now there is no federal authority for any kind of chartering for fintech companies, whether they're [involved in] payment or lending, that are not depositories,” she said.

Lacewell argued that "the federal-state dual banking system ... is critical, and each has a role to play.”

Advocates of state authority frequently cite the importance of local bank supervisors as consumer watchdogs. But Brooks said the notion that states are better watchdogs is unproven.

“This idea that if the states want to go further, they can be more protective and everything, that's a trope you hear a lot,” he said.

Lacewell emphasized the role of states in protecting their residents.

“The states are the people, and the people are the consumers,” she said. “Everything that we do, and everything that our licensed entities do, affect real people in their lives.”

But she also stressed the importance of collaboration between state and federal authorities in the realm of innovation, arguing that when the two branches of the dual banking system actually act in concert, it's possible to foster innovation “at the same time as consumer protection.”

“We need to continue to work together — the states, together with the federal regulators, listening to all the stakeholders, the consumers,” Lacewell said.