WASHINGTON — A week after the Office of the Comptroller of the Currency created a new federal charter for fintech firms, California's financial regulator is calling on other states to work together in making their licensing system more palatable to companies.
State regulators have been bracing for the OCC's move, fearing a federal system could give fintech firms inappropriate advantages.
Still, some have acknowledged that they could make their own system easier by creating a more unified system for companies that have to apply for a license in every single state in which they want to operate.
"There is a recognition that state regulators could probably do a better job of providing a more coordinated regime," Tom Dresslar, the deputy commissioner for policy and planning in California's Department of Business Oversight, said in an interview. "There have been some preliminary discussions about how we would go about doing that."
Dresslar is not alone. In an interview in September, Ray Grace, the commissioner of banks for North Carolina, said that banks should explore the possibility of creating reciprocal arrangements in which a license in one state could be automatically transferred to another state.
"It's a path that we need to explore," Grace said. "Ideally, if we could work out the issues [to] give each of the participating states comfort in the manner in which the companies will be chartered and supervised, that will perhaps allow for some reciprocal participation in the examination of those companies."
The OCC announced last week that it would allow fintech companies to apply for a limited-purpose national bank charter, which would provide firms with an alternative to the complex state-by-state licensing system.
But states quickly registered their strong opposition to the OCC's plan, arguing that by pre-empting certain state laws it could lower consumer protection standards for companies that are admitted to the program.
"We are deeply concerned that the OCC plan could end up being back to the future darkly for consumers," Dresslar said.
He added that if the charter pre-empts state consumer protection laws, "We will oppose the charter."
Dresslar said the California regulator would comment on the OCC's proposal as a first step, but he declined to specify what other types of formal actions it might take.
"We haven't formalized a plan, but we'll send in comments, and engage in whatever other activities we feel are warranted," he said.
When the charter was announced, state regulators joined consumer protection advocates in expressing skepticism about the OCC's ability to ensure that chartered companies would not engage in predatory or unfair lending behavior.
"The problem is that federal banking regulators have never had much stomach for enforcing consumer protection laws," Dresslar said. "But they have demonstrated a willingness to pre-empt our enforcement authority. That combination has always put consumers on the losing end, and we don't want to repeat history."
Other banking regulators had their own choice words on the OCC's charter.
"The New York State Department of Financial Services opposes any effort to federalize what states have been doing — and doing well — for over a century," New York Superintendent of Financial Services Maria T. Vullo said in a statement last week.
"State regulators, like DFS, are best positioned to continue to protect consumers and ensure that dynamic service providers like fintech firms will continue to flourish within an appropriately tailored regulatory regime," she added.
The Conference of State Bank Supervisors has also weighed in. John W. Ryan, the group's president and chief executive officer, called the charter "a historic expansion of the role of the federal government into broad and undefined areas of the economy with real risks and consequences."
Ryan suggested that the charter would confer unfair advantages upon the few companies that obtain the charter.
"If five get it, then five will get an advantage over 5,000 and it will impact the competitive marketplace," he said in an interview.
The OCC has stressed that it would impose strict requirements on fintech companies applying for the charter, in many cases mirroring those already imposed on banks.
"Granting national charters to the companies who desire and warrant one doesn't weaken the competitive position of existing banks or the dual banking system," Comptroller of the Currency Thomas Curry said during a speech announcing the charter. "In some ways, it levels the playing field because statutes that by their terms apply to national banks would apply to all special-purpose national banks, even uninsured ones."
Fintech companies under the national charter will benefit from the same pre-emption privileges as banks, meaning they will be allowed to follow federal guidelines instead of state laws on a number of issues, including state usury caps and certain fair lending laws. In other cases, state laws will still apply.
"State laws would not apply if they would require a national bank to be licensed in order to engage
in certain types of activity or business," the OCC said in its paper examining the charter. "Examples of state laws that would generally apply to national banks include state laws on anti-discrimination, fair lending, debt collection, taxation, zoning, criminal laws, and torts."
