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OCC Issues Revised Comptroller’s Licensing Manual Booklets
On May 8, the OCC announced the release of a revised Fiduciary Powers booklet of the Comptroller’s Licensing Manual, which replaces the version issued in June 2002, and applies to all national banks and federal savings associations proposing to exercise fiduciary powers. This revised booklet incorporates updated procedures and requirements following the integration of the Office of Thrift Supervision (OTS) into the OCC in 2011 and the revisions to 12 C.F.R. § 5 (effective July 1, 2015), which address applications for national banks and federal savings associations proposing to exercise fiduciary powers. Specifically, the revised booklet addresses the: (i) policies and procedures to guide a bank in submitting a request to exercise fiduciary powers or submitting a notice to the OCC that it is exercising fiduciary powers in a new state; and (ii) procedures for a bank to surrender its fiduciary powers and for the OCC to revoke those powers. The booklet also lists references and links to informational resources to assist applicants during the filing process.
That same day, the OCC also released a revised Public Notice and Comments booklet of the Comptroller’s Licensing Manual, which replaces the version updated in March 2007. This revised booklet incorporates public notice and comments procedures and requirements that were updated following the integration of OTS into the OCC, and the issuance of revised 12 CFR Part 5, and applies to national banks and federal savings associations, unless otherwise noted, as well as federal branches and agencies of foreign banks. In particular, the booklet addresses the “general requirements related to the public notice process, impact of Community Reinvestment Act (CRA) performance on certain applications or notices (filings), application of the convenience and needs standard under the Bank Merger Act, and requirements and procedures for conducting public hearings, public meetings, and private meetings.”
Conference of State Bank Supervisors Announce Initiatives to Obviate Need for Fintech Charter, New York Joins Nationwide Mortgage Licensing System for Fintechs
On May 10, the Conference of State Bank Supervisors (CSBS) announced a “series of initiatives to modernize state regulation of non-banks, including financial technology [fintech] firms.” The draft of initiatives, branded “Vision 2020,” appear to be generally geared towards streamlining the state regulatory system so that it is capable of supporting business innovation, while still protecting the rights of consumers. As explained by CSBS Chairman and Texas Commissioner of Banking Charles G. Cooper, the CSBS is “committed to a multi-state experience that is as seamless as possible,” and, to this end, “state regulators will transform the licensing process, harmonize supervision [and] engage fintech companies.”
The initial set of actions that CSBS and state regulators are taking includes the following:
- Redesign the Nationwide Multistate Licensing System (NMLS). CSBS plans to redesign the NMLS, which is a web-based system that allows non-depository companies, branches, and individuals in the mortgage, consumer lending, money services businesses, and debt collection industries to apply for, amend, update, or renew a license online. In particular, the CSBS’s redesign will “provide a more automated licensing process for new applicants, streamline multi-state regulation, and shift state resources to higher-risk cases.”
- Harmonize multi-state supervision. CSBS has created “working groups to establish model approaches to key aspects of non-bank supervision,” to “enhance uniformity in examinations, facilitate best practices,” and “capture and report non-bank violations at the national level.” CSBS also intends to “create a common technology platform for state examinations.”
- Form an industry advisory panel. CSBS will “establish a fintech industry advisory panel to identify points of friction in licensing and multi-state regulation, and provide feedback to state efforts to modernize regulatory regimes.”
- Assist state banking departments. CSBS intends to start “education programs” that “will make state departments more effective in supervising banks and non-banks.”
- Make it easier for banks to provide services to non-banks. CSBS is also “stepping up efforts to address de-risking—where banks are cautious about doing business with non-banks, due to regulatory uncertainty – by increasing industry awareness that strong regulatory regimes exist for compliance with laws for money laundering, the Bank Secrecy Act, and cybersecurity.”
- Make supervision more efficient for third parties. CSBS also intends to “support[] federal legislation that would allow state and federal regulators to better coordinate supervision of bank third-party service providers.”
By harmonizing the supervision and licensing system and working more closely together, state regulators appear to want to eliminate a key reason to seek the OCC charter, namely the ability to deal with one federal agency and follow a single set of rules. As previously covered in InfoBytes, the CSBS and a number of individual stakeholders have fiercely opposed the OCC’s other main fintech initiative—the development of a special purpose national bank charter for payments processors, online lenders and other new entrants in the financial industry. CSBS sued the OCC last month, arguing it lacked the legal power to move forward. The overall initiative appears to be a response to the OCC’s own “responsible innovation” efforts, which—as previously covered in InfoBytes—culminated in the creation of a new office last year to correspond with fintechs and the banks interested in partnering with them.
Concurrent with CSBS’s Vision 2020 initiatives, on May 11, the New York State Department of Financial Services (NYDFS) announced that beginning July 1, 2017, it will transition to the NMLS to manage the license application and ongoing regulation of all nondepository financial institutions conducting business in the state, commencing with money transmitters. Specifically, on July 1, 2017, financial services companies holding New York money transmitter licenses will have the opportunity to transition those licenses to NMLS, and companies applying for new licenses will be able to apply through NMLS. As previously covered in InfoBytes, NMLS—a secure, web-based licensing system—will allow for easier on-line licensing renewal and enable NYDFS to “provide better supervision of the money transmitter industry by linking with other states to protect consumers.” Financial Services Superintendent Maria T. Vullo stressed that “[b]y working with the CSBS, which is leading the modernization of state regulation through Vision 2020, DFS is supporting the strong nationwide regulatory framework created by states to provide improved licensing and supervision by State regulators.”
Additional information about NMLS can be accessed through the NMLS Resource Center.
Vermont Enacts Law Expanding Requirements for Certain Businesses Regulated by Department of Financial Regulation
On May 4, Vermont Governor Phil Scott signed into law H. 182, which amends a number of laws relating to businesses regulated by the state’s Department of Financial Regulation. Among other things, the law: (i) amends registration requirements for consumer litigation funding companies; (ii) amends the licensing requirements for licensed lenders, money transmitters, check cashers and currency exchangers, debt adjusters, and loan servicers; (iii) amends the mortgage loan originator prelicensing and relicensing education requirements; (iv) defines the term “virtual currency” under the Money Services chapter and provides that “virtual currency” is a permissible investment for licensees; and (v) sets forth requirements for money transmitters related to receipts and refunds. The law also creates new types of licenses (and other related requirements (e.g., disclosures, record retention)) for “loan solicitation” activity, which includes, among other things, lead generation. The law took effect May 4, 2017, with the exception of provisions relating to money transmitter receipts and refunds, lead generator disclosure requirements, and loan solicitor disclosure requirements, which take effect July 1, 2017.
OCC’s March Fintech Guidance Documents Draw Range of Comments, Reactions from Stakeholders
Back in December of last year, the OCC announced its intention to move forward with developing a special purpose national bank charter for financial technology (fintech) companies. In an accompanying white paper the OCC outlined the basis for its authority to grant such charters to fintech companies and potential minimum supervisory standards for successful fintech bank applicants. And, as previously covered by InfoBytes, in March, the OCC released a Draft Licensing Manual Supplement for Evaluating Charter Applications From Financial Technology Companies (“Draft Fintech Supplement”) and a Summary of Comments and Explanatory Statement (“March 2017 Guidance Summary”) (together, “March 2017 Guidance Documents”) in which it provided additional detail concerning application of its existing licensing standards, regulations, and policies to fintech companies applying for special purpose national bank charters. With the comment period for its March 2017 Guidance Documents closing earlier this month, the bank regulator drew a range of reactions from stakeholders, several of which are described below:
Center for Responsible Lending (CRL). In its comment letter—submitted on behalf of a number of consumer, civil rights, small business, and community groups—the CRL argued, among other things, that “the OCC does not have the legal authority to charter non-depositories,” and “is not a substitute for critical safeguards that exist at the state level,” and that the existence of a national bank charter for non-depository fintech institutions would likely result in the preemption of strong state laws. The signers expressed concern that, in its approval process, the OCC “has completely failed to address critical consumer and small business protection requirements.” The letter adds that the chartering process, as it now exists, “seems more designed to pick winners and losers and grant special privileges to established players in the industry than to facilitate innovation.”
Mercatus Center at George Mason University (Mercatus Center). In its comment letter, the Mercatus Center set forth its position and belief that the OCC’s current proposal “shows some improvement over its previous statements,” but “remains overly focused on the survival of the entity instead of the protection of customers.” According to Brian R. Knight, a Senior Research Fellow at the Mercatus Center, the proposal imposes requirements and conditions on special purpose national banks (SPNBs) “that many will find impossible to meet—without a sufficient countervailing benefit.” Knight recommends therefore, that the OCC, among other things: (i) reorient charter requirements away from insisting that SPNBs demonstrate survivability and toward ensuring that they can fail in an orderly manner that protects their customers; and (ii) clarify the requirements for SPNBs to obtain and maintain a charter consistent with the rights and responsibilities of national banks under relevant law.
Consumer Bankers Association (CBA). In an April 14 comment letter, the CBA argued that the OCC "has not provided a clear rationale or justification for offering a national bank charter to fintech companies,” and that the standards for such banks are not yet fully developed.” The group urged the OCC to conduct an in-depth study of the fintech sector to determine whether or not the public would benefit from a fintech charter.
Independent Community Bankers of America (ICBA). As previously covered by InfoBytes, the ICBA has been a vocal opponent of the OCC’s fintech charter efforts throughout the agency’s nearly yearlong process. Reiterating concerns raised in its January 17 comment letter, the ICBA submitted another comment letter on April 12, calling upon the OCC to rescind the proposed licensing manual supplement and request specific congressional authorization to grant fintech charters. Specifically, the ICBA asserted the need to spell out clearly the supervision and regulation that these chartered institutions and their parent companies would be subject to. The ICBA noted its observation that federal agencies “are inconsistent on how they define a ‘bank’ or what constitutes the ‘business of banking,’” and argued the benefits of giving Congress the “opportunity to define the business of banking and consider all the policy implications of issuing a fintech charter.” In particular, the ICBA insisted that the OCC publish liquidity and capital requirements for fintech firms that would be the same as those applied to depository institutions. The ICBA also issued a statement concerning a lawsuit filed April 26 by the Conference of State Bank Supervisors CSBS against the OCC (see related InfoBytes Special Alert), in which the organization “commend[ed] the CSBS for elevating this issue and remains deeply concerned with the OCC’s proposed fintech charter, which the agency has pursued without congressional authorization or a formal rulemaking process subject to public comment.”
American Bankers Association. In an April 14 letter, the ABA expressed its support for the OCC’s proposed charter, so long as “the same rules and oversight are applied consistent with those for any national bank.” The ABA emphasized, among other things, the benefit of a bank charter as a “clear signal to customers that they are dealing with a trusted partner,” as “[t]he title of ‘bank’ carries significant weight in the mind of customers and should not be taken lightly.”
Marketplace Lending Association (MLA). In its April 13 comment letter, the MLA called for the OCC to “consider developing metrics that are different from those used for traditional depository institutions.” Specifically, the MLA argues, “[i]instead of applying rigid capital and liquidity requirements across the board, the OCC should consider implementing requirements that are based on basic prudent operations, long-term profitability, and risk factors that would apply” to fintech firms with different business plans or structures.
Financial Innovation Now (FIN). Finally, in a letter sent earlier this month to the Senate Banking Committee (FIN)—an “alliance of leading innovators promoting policies that empower technology to make financial services more accessible, safe and affordable for everyone”—offered several policy recommendations in response to the legislators’ request for proposals to grow the economy. Among the recommendations offered, was a call for a “Financial Innovation National Strategy” to foster innovation, job creation, and competition in the financial services sector. As part of that strategy, the FIN letter outlines six policy proposals: (i) statutory designation of an Undersecretary of Treasury for Technology; (ii) federal money transmitter laws; (iii) payment technology assessments under the Card Act; (iv) consumer data access protections; (v) better federal regulatory coordination; and (vi) flexible approaches to new tech entrants.
Maryland and Tennessee Expand Use of Reporting Requirements for Money Services Businesses
As previously covered by InfoBytes, the Nationwide Licensing System (NMLS) for Money Services Businesses (MSBs) recently unveiled the MSB Call Report that standardizes and streamlines routine reporting requirements for state-licensed MSBs. On April 18, Maryland Governor Larry Hogan signed into law HB 182, which requires specified licensees to obtain and maintain a valid unique identifier and transfer licensing information to the NMLS. The law will go into effect July 1, 2017. Among those who must now register with NMLS are check cashers, collection agencies, consumer lenders, debt management service providers, credit service businesses, and sales finance companies. Licenses for mortgage lenders, mortgage originators, and money transmitters are already processed through NMLS. The Commissioner of Financial Regulation is charged with establishing a time period that is “not less 2 months within which a licensee must transfer licensing information to the NMLS.” Furthermore, at least 30 days before the transfer period begins, the Commissioner shall notify all licensees of the transfer period and provide instructions for the transfer of licensing information to NMLS.
On April 12, Tennessee Governor Bill Haslam enacted SB 1202, authorizing Tennessee’s Department of Financial Institutions to license industrial loan and thrift companies, title lenders, and individuals regulated under the Check Cashing Act or the Premium Finance Company Act through a multi-state automated licensing system. The law allows for the sharing of information—subject to specified confidentiality requirements—with state and federal regulatory officials having consumer finance industry oversight authority or finance industry oversight. Licenses for these types of entities will expire on December 31 of each year. The law includes staged effective dates, the first being July 1, 2017.
Nationwide Mortgage Licensing System Unveils New Money Services Businesses Call Report
On April 1, the Nationwide Mortgage Licensing System (NMLS) Money Services Businesses (MSB) unveiled “the first comprehensive report to consolidate state MSB reporting requirements and provide a database of nationwide MSB transaction activity.” It also allows licensees to report directly in NMLS for all states on a quarterly and annual basis. The release of the MSB Call Report culminates “a multi-year effort by state regulators to develop a tool to standardize and streamline routine reporting requirements for state-licensed Money Services Businesses”—including money transmitters, check cashers, and prepaid card issuers. The MSB Call Report contains three sections: (i) “company financial information”; (ii) “information about the licensee’s company and state level transactional activity”; (iii) “company permissible investments information”; (iv) “and transaction destination country information.” According to the MSB Call Report webpage, 18 state agencies will adopt the MSB Call Report for Q1 2017 reporting.
NMLS is the system of record for non-depository, financial services licensing or registration in participating state, territory and local agencies. Although NMLS does not grant or deny license authority, it does—in participating jurisdictions—serve as the official system for companies and individuals seeking to apply for, amend, renew and surrender licenses. NMLS is also the sole system of licensure for mortgage companies and the system of record for the registration of depositories, subsidiaries of depositories, and Mortgage Loan Originators (MLOs) under the CFPB’s Regulation G (S.A.F.E. Mortgage Licensing Act—Federal Registration of Residential Mortgage Loan Originators).
Additional information and a list of the state agencies that have adopted the report as of March 2017 can be accessed through the NMLS Resource Center.
Amendment to Utah Law Clarifies “Deferred-Deposit” Lender Registration Process; Adds Criminal Background Check
On March 17, Utah Governor Gary Herbert signed an amendment to HB. 40, Utah’s Check Cashing and Deferred Deposit Lending Registration Act, which modifies registration requirements relating to the disclosure of criminal conviction information for individuals engaged in the business of cashing checks or deferred deposit lending. The amendment requires that the registration or renewal statement shall disclose whether there has been a criminal conviction involving an “an act of fraud, dishonesty, breach of trust, or money laundering” regarding any officer, director, manager, operator, principal, or employee. This information must be obtained through either a Utah Bureau of Criminal Identification report or by conducting an acceptable background check similar to the aforementioned report.
The amendment also addresses operational requirements for deferred deposit loans. Interest and fee schedules are required to be conspicuously posted, as should contact information for filing complaints and listings of states where the deferred deposit lender is authorized to offer loans. The amendment also provides clarification on rescinding loans, partial payment allowances, and restrictions on loan extensions.
Special Alert: OCC Issues Highly-Anticipated Guidance for Evaluating Charter Applications from Fintech Companies
On March 15, 2017, the Office of the Comptroller of the Currency (OCC) issued further guidance regarding how it will evaluate applications by fintech companies to become Special Purpose National Banks (SPNBs). In its release, the OCC summarized the more than 100 comments it received in response to its December 2016 white paper and provided a draft supplement to the OCC Licensing Manual outlining proposed requirements for fintech companies to become SPNBs.
Last week’s release is the latest in the OCC’s efforts to support the intersection between banking and technology companies. In August 2015, Comptroller Thomas Curry announced the OCC’s intent to assemble a team of policy experts, examiners, attorneys, and other agency staff to begin researching innovative developments in the financial services industry. In March 2016, the OCC published a summary of its initial research and plans to guide the development of responsible financial innovation. In September 2016, the OCC issued a notice of proposed rulemaking clarifying the framework and process for receiverships of national banks without FDIC-insured deposits. That proposal applied to all non-depository national banks, including those with special purpose national bank charters. In October 2016, the OCC detailed its plans to implement a responsible innovation framework and announced the establishment of the Office of Innovation, a dedicated, central point of contact for fintech companies as well as requests and information related to innovation. Finally in December 2016, the OCC published a white paper announcing its intent to create a SPNB charter for fintech companies and invited comments and posed discrete questions for consideration regarding the proposals.Click here to read full special alert
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If you have questions about the guidance or other related issues, visit our Financial Institutions Regulation, Supervision & Technology (FIRST) and FinTech practice pages for more information, or contact a Buckley Sandler attorney with whom you have worked in the past.
OCC Releases Draft “Licensing Manual Supplement” to be Used for Evaluating Fintech Bank Charter Applications; Will Accept Comments Through April 14
On March 15, the OCC released both a Draft Licensing Manual Supplement for Evaluating Charter Applications From Financial Technology Companies (“Draft Fintech Supplement”) and a Summary of Comments and Explanatory Statement (“March 2017 Guidance Summary”) (together, “March 2017 Guidance Documents”) in which it provides additional detail concerning application of its existing licensing standards, regulations, and policies in the context of Fintech companies applying for special purpose national bank charters. The Draft Fintech Supplement is intended to supplement the agency’s existing Licensing Manual. The March 2017 Guidance Summary addresses key issues raised by commenters, offers further explanation as to the OCC’s decision to consider applications from Fintech companies for an Special Purpose National Bank (“SPNB”) charter, and provides guidance to Fintech companies that may one day wish to file a charter application.
The March 2017 Guidance Documents emphasize, among other things, certain “guid[ing]” principles including: (i) “[t]he OCC will not allow the inappropriate commingling of banking and commerce”; (ii) “[t]he OCC will not allow products with predatory features nor will it allow unfair or deceptive acts or practices”; and (iii) “[t]here will be no “light-touch” supervision of companies that have an SPNB charter. Any Fintech companies granted such charters will be held to the same high standards that all federally chartered banks must meet.” Through its commitment to (and alignment with) these principles, the OCC “believes that making SPNB charters available to qualified [FinTech] companies would be in the public interest.”
Notably, the OCC emphasized that its latest Fintech guidance “is consistent with its guiding principles published in March 2016” and “also reflects the agency’s careful consideration of comments received (covered by InfoBytes here) on its December 2016 paper discussing issues associated with chartering Fintech companies.” As covered in a recent InfoBytes Special Alert, the OCC has, over the past several months, taken a series of carefully calculated steps to position itself as a leading regulator of Fintech companies.
Finally, although it does not ordinarily solicit comments on procedural manuals or supplements, the OCC will be accepting comments on the aforementioned Fintech guidance through close of business April 14.
OCC Issues Updated Guidance for Managing Bank Premises and Equipment
On November 29, the OCC announced the release of a revised Bank Premises and Equipment booklet of the Comptroller’s Handbook. The revised booklet, which replaces the booklet of the same title issued in March 1990, applies to examinations of all national banks and federal savings associations engaged in the acquisition, management, and disposal of bank premises and equipment. According to the accompanying OCC Bulletin, the revised booklet incorporates updated statutory and regulatory citations and revised examination procedures since the integration of the Office of Thrift Supervision into the OCC in 2011. The bulletin explains that the booklet also replaces the "Investment in Bank Premises" booklet of the Comptroller’s Licensing Manual and the "Fixed Assets" section of the former Office of Thrift Supervision Examination Handbook.