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OCC Chief Issues Remarks on Fintech Charter Plan; Federal Reserve Governor Highlights Virtual Currency Risks
On March 6, Thomas Curry, Comptroller of the Office of the Comptroller of the Currency (OCC) spoke at the LendIt USA 2017 conference and addressed arguments against the regulator’s authority to provide charters to Fintech firms as presented in its December 2016 white paper, Exploring Special Purpose National Bank Charters for Fintech Companies (see InfoBytes Special Alert). Curry stated, “[T]he National Bank Act [] give[s] the OCC the legal authority to grant national bank charters to companies engaged in the business of banking,” and added that “[i]t is not circumscribed just because a company delivers banking services in new ways with innovative technology.” Curry says the OCC plans to publish a supplemental document to clarify ways it will evaluate Fintech companies that apply for charters.
Regarding the risks posed by institutions creating their own virtual currencies, Federal Reserve’s lead governor, Jerome Powell, said in remarks made to Yale University on March 3 that the risks and technological challenges are far too high for central banks to undertake. “Any central bank actively considering issuing its own digital currency would need to carefully consider the full range of the payments system and other policy issues, which do seem substantial, as well as the potential societal benefits,” said Powell. “I would expect private-sector systems to be more forward-leaning than central banks in providing new features to the public through faster payments systems as they compete to attract retail customers,” Powell said. “A central bank-issued digital currency would compete with these and other innovative private-sector products and may stifle innovation over the long run.”
Special Alert: District Court Confirms Telephonic Consent to Preauthorized ACH Debits Complies with ESIGN and EFTA
On February 17, a U.S. District Court in Nashville, TN found that a creditor complied with both the Electronic Signatures in Global and National Commerce Act[1] (“ESIGN”) and the Electronic Fund Transfer Act[2] and its implementing regulation, Regulation E[3] (collectively “EFTA”) when it obtained a consumer’s “written” authorization over the telephone to enroll in recurring ACH payments and mailed a paper copy of the authorization to the consumer two days later.[4] This case (“Blatt”) is significant because it clarifies and confirms much of the existing understanding of the interaction between ESIGN and the Uniform Electronic Transactions Act, and provides precedent for advancing the validity of widespread industry practices in other courts.
[1] 15 U.S.C. § 7001, et seq.
[2] 15 U.S.C. § 1693, et seq.
[3] 12 C.F.R. §1005.1, et seq.
[4] Blatt v. Capital One Auto Finance, [Memorandum and Order] No. 2:15-cv-00015, 2017 WL 660677 (M.D.Tenn. Feb. 17, 2017).
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Click here to read full special alert.If you have questions about the ruling or other related issues, visit our FinTech and Auto Finance practice pages for more information, or contact a Buckley Sandler attorney with whom you have worked in the past.
FTC Issues Summary of ECOA Enforcement and Educational Activity to CFPB as Bureau Prepares Annual Report
On February 3, the FTC provided the CFPB with an overview of its work on ECOA-related policy issues, focusing specifically on the Commission’s activities with respect to Regulation B. The letter discusses, among other items, the Commission’s fair lending research, policy development and educational initiatives such as (i) surveying consumers about their experiences in buying and financing automobiles; (ii) providing a report to businesses to help them avoid exclusionary or discriminatory outcomes when using big data analytics; (iii) creating a FinTech forum series that explores emerging financial technology and its implications for consumers; (iv) issuing a report to Congress on Commission efforts in African American and Latino communities related to fraud prevention; (v) hosting a workshop to examine marketplace changes based on population changes and diversity trends; and (vi) attending Interagency Task Force on Fair Lending meetings to share information on lending discrimination, predatory lending enforcement, and policy issues. The letter also discusses the Commission’s business and consumer education efforts on fair lending issues.
President of Philadelphia Fed Makes an Argument for FinTech Regulation
In prepared remarks at the “Global Interdependence Center’s Payment Systems in the Internet Age” Conference, Philadelphia Fed President Patrick T. Harker said that regulating the evolving FinTech industry benefits not only consumers, but also the innovators. While Harker did not speculate as to whether the Fed will become involved in FinTech regulation, he stated that it is in the best interest of FinTech companies “to have an established framework in which to operate.” He cautioned, however, that “all financial systems are a matter of trust” and thus FinTech firms will “need that trust the same as any other bank or financial institution.” Harker noted that regulations will help determine which companies can survive the “down side” of a credit cycle, but implementing regulations after a “crisis. . . could mean tighter strictures and less room for innovation.”
CFTC Extends Public Comment Period for Regulation Automated Trading (Reg AT) to May 1
On January 23, the CFTC extended the comment period for the supplemental proposal for Regulation Automated Trading (Regulation AT) from January 24 to May 1. Acting CFTC Chairman Chris Giancarlo recently announced his intention to “allow more time for public comments on the proposal” in light of “the complexity of the supplemental notice and the well-reasoned requests from interested parties.” Initially proposed in November 2015, the CFTC released a revised version of the rule in November 2016 in response to concerns expressed by trading firms over, among other things, the requirement that they make their source code available to the agency without a subpoena. All comments will be posted on the CFTC’s website.
OCC Announces Launch of New Central Application Tracking System (CATS)
On January 17, the OCC launched the first phase of its Central Application Tracking System (CATS), a new web-based system for banks to file licensing and public welfare investment applications and notices. CATS provides a secure, electronic system through which authorized national banks, federal savings associations, federal branches, and banking agencies may draft, submit, and track their licensing and public welfare investment applications and notices. CATS will replace the existing e-Corp and CD-1 Invest application tools. As explained in OCC Bulletin 2016-37, the new program is being launched in three phases to help banks transition from the existing tools. The second and third phases of the CATS rollout are scheduled to begin in the spring of 2017. When ready, CATS will be accessible through BankNet, the secure portal for OCC-regulated banks.
NYDFS Submits Comment Letter Opposing OCC FinTech Charter
On January 17, the New York Department of Financial Services (NYDFS) Superintendent Maria T. Vullo submitted a comment letter in stern opposition to the OCC proposal to create a new FinTech charter, stating that the proposed regulatory scheme is not authorized by federal law and would create a number of problems, including a serious risk of regulatory confusion and uncertainty. New York’s top financial regulator is of the opinion that “the OCC should not use technological advances as an excuse to attempt to usurp state laws.” More specifically, NYDFS’ contends, among other things, that: (i) state regulators are better equipped to regulate cash-intensive nonbank financial service companies; (ii) a national charter is likely to stifle rather than encourage innovation; (iii) the proposal could permit companies to engage in regulatory arbitrage and avoid state consumer protection laws; and (iv) a national charter would encourage large “too big to fail” institutions, permitting a small number of technology-savvy firms to dominate different types of financial services.
An interview of Superintendent Vullo discussing this topic may be accessed here.
PA Secretary of Banking and Securities Voices Concerns About OCC FinTech Charter
On January 17, Secretary of the Pennsylvania Department of Banking and Securities, Robin L. Wiessmann, submitted a comment letter calling upon the OCC to give “more thoughtful deliberation about the intended and unintended consequences that will result from such an apparent departure from the OCC’s current policy and scope of supervision.” Specifically, Wiessman requested that the federal bank regulator address three concerns regarding: (i) the broad application and ambiguity of the term “fintech”; (ii) the need by the OCC to have an adequate regulatory scheme in place before approving charters; and (iii) the possible federal preemption of existing state consumer protection laws. The Secretary’s letter echoes many of the concerns raised in a recent comment letter submitted by the Conference of State Bank Supervisors (CSBS) “reiterating its opposition to the [OCC] proposal to issue a special charter for fintech companies.”
OCC FinTech Proposal Draws a Range of Comments from Industry Stakeholders
A number of stakeholders submitted comment letters this week in response to the OCC's recent proposal to move forward with developing a special purpose national bank charter for financial technology (“FinTech”) companies and accompanying white paper outlining the OCC’s authority to grant such charters to FinTech companies and potential minimum supervisory standards for successful FinTech bank applicants. With the comment period for its white paper closing this week, the bank regulator drew a range of reactions from the stakeholders, several of which are described below:
Consumer Bankers Association (CBA): In its comment letter, the CBA noted that the OCC needs to provide more clarity about the regulatory and supervisory framework that will be applied to FinTech companies, and to proceed cautiously and “provide the public with more information about the potential risks and rewards presented by” FinTech companies. The trade association recommended that the OCC utilize its new Office of Innovation and Responsible Innovation Framework to conduct a study of the FinTech sector to provide sufficient information to evaluate the need for and public benefits of a FinTech charter. Although the CBA confirmed support for “any effort to enhance the ability of banks to innovate,” it stated that it could not “yet support the inclusion of fintech companies into the federal banking system.”
Independent Community Bankers of America (ICBA): In its comment letter, the ICBA stressed the need for the OCC to issue new chartering rules pursuant to the procedure under the Administrative Procedure Act, in consultation with the other bank regulators, and that ultimately these new institutions should be subject to the same supervision and regulation as community banks. The ICBA also expressed “strong concerns about issuing special purpose national bank charters to fintech companies without spelling out clearly the supervision and regulation that these chartered institutions and their parent companies would be subject to.”
American Bankers Association (ABA). The ABA’s comment letter expressed support of a special purpose national bank charter for FinTech companies, as long as existing rules and oversight are applied evenly and fairly. The letter noted, among other things, that significant benefits of financial innovation for consumers are “only realized when innovations are delivered responsibly,” which can be ensured by regulation and oversight. The letter added that “answers to many difficult questions should be made before granting any special purpose charter, including how to ensure that regulations and consumer protection are applied evenly; what protections must be in place to preserve existing laws regarding the separation of banking and commerce; and how would enforcement of operating agreements be accomplished.” The ABA also urged the OCC to work with other agencies “carefully and cooperatively” before any new charter is approved.
Financial Services Roundtable (FSR): Finally, a comment letter submitted by the FSR commended the OCC for developing the proposal, noting that regulations and regulators need to evolve with technology and changing customer preferences. The FSR letter noted that the OCC’s initiative should ensure parity among national charters, and not result in a two-tiered national banking system under which special purpose FinTech banks are subject to compromised supervisory standards. The letter added that to ensure parity in regulation and supervision, “the OCC may find it necessary to re-evaluate some standards applicable to full-service national banks and, as mentioned previously, examine the existing regulatory constraints inhibiting national banks from engaging in responsible innovation.”
Special Alert: OCC Takes the Next Step Toward a Fintech National Bank Charter
On December 2, 2016, the Office of the Comptroller of the Currency (“OCC”) announced its plans to move forward with developing a special purpose national bank charter for financial technology (“fintech”) companies. Accompanying the Comptroller of the Currency, Thomas J. Curry’s announcement, the OCC published a white paper that describes the OCC’s authority to grant national bank charters to fintech companies and outlines minimum supervisory standards for successful fintech bank applicants.[1] These standards would include capital and liquidity standards, risk management requirements, enhanced disclosure requirements, and resolution plans. Over the past several months, the OCC has taken a series of carefully calculated steps to position itself as the preeminent regulator of fintech companies in a hotly-contested race among other federal and state regulators who have similarly expressed interest in formalizing a regulatory framework for fintech companies. This proposal from the OCC reflects the culmination of those efforts.
Click here to read the full special alert
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BuckleySandler welcomes questions regarding this new approach to fintech and banking, and would be happy to assist companies in determining whether a national bank charter would be beneficial for executing on their corporate strategies. Questions regarding the matters discussed in this Alert may be directed to any of our lawyers listed below, or to any other BuckleySandler attorney with whom you have consulted in the past.
- Jeremiah S. Buckley, (202) 349-8010
- John P. Kromer, (202) 349-8040
- Jeffrey P. Naimon, (202) 349-8030
- Clinton R. Rockwell, (310) 424-3901
- Walter E. Zalenski, (202) 461-2910