Otting Paints Positive Picture for Fintech Charters

Financial Services Law

Comptroller of the Currency Joseph Otting recently weighed in on fintechs, presenting a positive picture for fintech companies considering seeking a special purpose national bank charter from the Office of the Comptroller of the Currency (OCC).

Speaking at a roundtable with reporters, Otting said he does not see access to the Federal Reserve System as a problem for potential applicants and predicted the first charter will be issued in the coming months.

What happened

Should potential fintech charter applicants be concerned about gaining access to the Federal Reserve system? No, Otting said at the roundtable event, as chartered firms will have some form of access to the Fed’s payments system or its discount borrowing rates.

“I don’t view that as an impediment,” Otting told reporters, according to Bloomberg News, despite the fact that the Fed itself has not commented on the question.

A fintech charter granted by the OCC would, among other things, allow nonbank fintechs to originate loans and offer payment processing services but would not otherwise require nonbank fintechs to accept deposits, and some fintechs have expressed concern about gaining access to the Federal Reserve System for such transactions. But the Comptroller said the issue of Fed access hasn’t come up in the “hundreds” of meetings he’s had with fintechs considering the new charter.

Otting also brushed off concerns about the ongoing litigation challenging the OCC’s power to grant fintech charters. The battle dates back to December 2016, when the agency originally announced its plan to issue charters. The Conference of State Bank Supervisors (CSBS) filed suit, followed by the New York Department of Financial Services (DFS). Both actions were dismissed last year as unripe.

But after the OCC formally announced in July 2018 that it would accept applications for fintech charters, both the DFS and the CSBS filed new actions alleging the OCC overstated its statutory authority and violated federal law. Despite the litigation, Otting told reporters that the OCC expects to issue its first fintech charter in the first quarter of 2019.

“2019 will be a pretty interesting time to watch fintechs,” Otting said.

Why it matters

While there has certainly been a lot of talk about fintech charters, we have yet to see the issuance of the first fintech charter by the OCC. However, based on the fact that the OCC expects to issue the first fintech charter in the first quarter of 2019, it appears that there is at least one applicant in line. We believe that many fintech firms will queue up for the second place in line to apply, as the first applicant will not only face the uncertainty of being a guinea pig for the new charters but will also likely end up being pulled into the ongoing litigation with various banking regulatory organizations and state regulators. It also remains to be seen what effect the departure this month of New York State Department of Financial Services Commissioner Maria T. Vullo will have on that state’s appetite for battling the OCC in the courts.

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