FinTech Charters Expand Inclusion, Innovation

Though financial technology companies (FinTechs) are now able to apply for federal bank charters, according to Comptroller of the Currency Thomas J. Curry, these charters are “not for everyone.”

In a speech at the LendIt USA 2017 conference in New York this afternoon, Curry addressed the Office of the Comptroller of the Currency’s recent decision to grant FinTechs bank charters—a move that furthers the agency’s overall goal of promoting financial inclusion and responsible innovation.

“There is great value in a federal charter, but it’s not for everyone,” Curry said, citing “high standards” and “rigorous, value-added supervision by the OCC” as a few barriers to entry.

According to Curry, the OCC has received more than 100 comments on the issue to date. Many of these comments, he said, voiced concerns about oversight of chartered FinTechs, specifically “the notion that receiving a national bank charter is a ticket to light-touch supervision.”

“That is not the case,” Curry said. “On the contrary, all national banks get regular on-site supervision by trained, highly professional examiners who assess whether the company is operating in a safe and sound manner and complying with laws that protect the consumer and make the system safer for everyone. It also means that laws that apply uniquely to national banks would also apply to the newly chartered FinTech that becomes a national bank. It also means appropriate capital and liquidity standards.”

The National Association of Federally-Insured Credit Unions recently touched on this issue, asking the OCC hold FinTechs to “the same consumer protection laws as chartered banks and credit unions.”

Many comments also suggested chartering FinTechs could allow predatory and abusive lending practices to enter the federal banking system, Curry said.

“First, the OCC shares concerns about predatory lending and has taken significant steps to eliminate abusive practices in the federal banking system,” he said. “The OCC will not approve charter proposals from any company that plans to offer financial products and services with predatory or abusive features.”

Allowing FinTechs to apply for federal charters is just one way the OCC is enabling innovation in the banking industry—something that will improve results for both consumers and businesses, according to Curry.

Speaking to the conference’s audience of lending and Fintech professionals, he said, “Your companies, your ideas, have fueled healthy competition to modernize and improve how the nation’s financial services needs are met. Such competition has long-term positive effects for the banking industry and for the consumers, businesses, and communities that it serves. That’s the potential I see, and that is what makes me so engaged in financial innovation.”

FinTech charters will also expand financial inclusion within the industry, Curry said, which could help underserved populations.

“Financial inclusion lifts people up,” Curry said. “It brings those who are unbanked and underbanked into the fold, and too many of those individuals are concentrated in low- and moderate-income communities that are often the most vulnerable to financial difficulty and predatory practices.”

It could also have a positive impact on the economy.

“While financial inclusion is good for society, it is also good for business because it expands markets and turns marginal customers into valued clients,” he said. “People with greater control and mastery of their financial lives make better customers and contribute to the prosperity of communities and even future generations.”

The OCC is currently working to publish a supplement to its Licensing Manual that will clarify the evaluation process for Fintech charter applications. It is also in the process of establishing an Office of Innovation that will serve as the “central point of contact and clearinghouse for requests and information relation to innovation.”

“Its staff will conduct outreach and provide technical assistance, and will hold office hours in cities with significant interest in financial innovation to make candid regulatory advice more accessible,” Curry said. “The office will promote awareness and training among OCC employees to improve our understanding of these important issues, and lead our collaboration with other regulators, foreign and domestic.”