OCC Head Talks Changing Business Models, Madden Fix

Financial Services Law

Speaking at an industry event, Acting Comptroller of the Office of the Comptroller of the Currency (OCC) Keith Noreika discussed changing business models as well as the need for a “Madden fix.”

What happened

Addressing attendees at the Online Lending Policy Summit in Washington, D.C., Noreika focused on economic opportunity, a theme of his time leading the agency and “a big part” of the Treasury Department’s core financial principles.

Some have characterized the growth of the online lending industry as a response to the nation’s banking industry, he noted, and have said that alternative lenders would not have grown so quickly but for a failure on the part of traditional lenders.

“I do not share that view,” Noreika said. “I see the growth of online lending and marketplace lenders as the natural evolution of banking itself. Your industry demonstrates a certain entrepreneurial spirit to seize economic opportunity that begins with your new idea. The idea may be leveraging the lending power of groups or using new data to assess creditworthiness. Or, the idea may be a way to make decisions faster or to give consumers more control of their financial lives.”

Too often, regulatory burden gets in the way of economic opportunity, Noreika added. The OCC has adopted several methods to get out of the way and promote responsible innovation. He highlighted efforts such as the agency’s Office of Innovation, launched in the summer of 2015, which strives “to make certain that institutions with federal charters have a regulatory framework that is receptive to responsible innovation and supervision that supports it. Part of that mission is to assist companies like yours that want to partner with or provide services to banks or even become one.”

Hosting “Office Hours” in cities such as New York and San Francisco has facilitated outreach by the OCC and allows the agency to share its perspective on ideas early in the innovation development process, with companies ranging from those seeking to work with banks to those exploring potential innovations.

Bank pilots and “regulatory sandboxes,” including the development of an optional program for banks to conduct pilots with OCC participation to foster responsible innovation, is another concept that is still in the works, Noreika said. “The idea is to create principles that support the industry’s need for a place to experiment while furthering the OCC’s understanding of innovative products, services, and technologies,” he explained.

While the agency is still developing its approach to the pilots, he cautioned that any program will be voluntary and cannot provide a safe harbor from many compliance requirements.

Noreika addressed the OCC’s proposed fintech charters, sharing his concern about “defining banking too narrowly or in a stagnant way that prevents the system from evolving or taking proper and responsible advantage of economic opportunities that result from advances in technology and commerce.”

Given the ongoing litigation challenging the OCC’s authority to grant such charters, the acting comptroller avoided talking about specifics. He did reiterate that the agency will “defend our authority vigorously” but that it has yet to decide whether it will exercise that authority to issue special purpose national bank charters for fintechs.

Noreika also took the opportunity to share his support of a legislative change that could reduce uncertainty, re-establish well-settled law and create a uniform standard eliminating the differences in treatment of loans made in different judicial circuits.

The so-called Madden fix would clarify the long-held “valid-when-made” doctrine, reversing the U.S. Court of Appeals, Second Circuit decision in Madden v. Midland Funding and providing that the rate of interest on a loan made by a bank, savings association or credit union that is valid when the loan is made remains valid after transfer of the loan.

To conclude, Noreika repeated his recent disavowal of Operation Choke Point. “The OCC’s policy is not to direct banks to open or close individual accounts without assessing the risks presented by individual customers or the bank’s ability to manage the risks,” he said. “Banks make the decisions to retain or terminate customer relationships, not the regulators, and not the OCC.”

To read the acting comptroller’s prepared remarks, click here.

Why it matters

The acting comptroller expressed optimism for the industry, regardless of the business model. “You are changing how financial services are delivered, and in some ways, you are raising the bar for what consumers of financial services should expect,” he said. “The market domestically and internationally has plenty of room to grow, and today in Washington there is real energy around reducing unnecessary regulatory burden and promoting economic opportunity. Those are good reasons to be optimistic.”

Separately at the same event, Reps. Gregory Meeks (D-NY) and Tom Emmer (R-MN) jointly expressed hope that they can work on a bipartisan basis on financial services reform in this session of Congress, and that barriers to innovation should be removed provided they do not compromise borrower protection.



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