After months of waiting, the OCC finally released its official comments and a white paper discussing its desire and considerations in granting special purpose (fintech) bank charters. Comptroller Thomas Curry said “It is clear that fintech companies hold great potential to expand financial inclusion, empower consumers, and help families and businesses take more control of their financial matters.”

While the idea of a bank charter for fintech companies has great potential, nothing in the paper or related commentary from the OCC seemed too revolutionary. Reactions were varied across the industry.

Many online lenders have reacted favorably so far. Currently regulated state-by-state, a national regulatory framework could make it easier for lenders to navigate the various laws. However, they still would not be allowed to accept insured deposits without separate approval from the FDIC. OnDeck has said that it will consider pursuing a charter, and Kabbage has expressed interest as well. However, it may not be that easy.

Julie WIlliams, former OCC chief counsel, said of the OCC’s guidance:

“… the process to get to the fintech-charter finish line is not for the faint of heart… What they’ve described is the full load of regulatory obligations and standards that would apply to any national bank.”

Moody’s issued commentary which agreed with the above, noting that “it is unclear whether marketplace lenders will seek the charters given their accompanying regulatory requirements… Operating through partner banks or via state licenses carries costs and risks for lenders, but operating under a bank charter could be more expensive and restrictive.” Fitch also stated that this type of charter could decrease the competitiveness of fintech firms by making fintech firms less agile and unable to leverage their lower-cost business models, which to date have been a competitive advantage against incumbent firms.

The loudest opposition came from groups representing smaller banks. Camden Fine, CEO of the Independent Community Bankers of America said that a fintech charter “poses risks to taxpayers and the financial system.” The Conference of State Bank Supervisors issued a dire warning stating three main concerns:

1. A federal fintech charter would distort the marketplace and “result in the OCC choosing winners and losers within the fintech industry”
2. The OCC does not have the statutory authority to issue full-service bank charters to non-deposit taking institutions.
3. Consumers will be at risk, since the OCC “has a history of pre-empting state consumer protection laws in ways that damaged consumers.”

All of these groups will have a chance to have their voices heard. The OCC ended its paper with 13 questions, and is seeking comments through January 15th. Despite the noise coming from both sides, I think it is very likely that the final result will be something in the middle — boring enough to please regulators, but different enough to provide talking points around how the OCC engages with innovation. While I personally don’t expect a deluge of newly-chartered fintech firms, I am sure a few firms will end up getting charters, and they may have some first-mover advantages. Time will tell if this new breed of firms can create more competitive business models than exist either in traditional banking or “traditional” fintech. However, I hope to be surprised to find that the final guidance ends up as forward-thinking and innovative as its potential.

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