Seven questions about fintech charters
Yesterday’s announcement by the OCC that it will begin accepting FinTech Bank charter applications is as big a development for banking as passage of the Riegle-Neal Act in 1994 which lead to the rapid consolidation of community banks and credit unions that we are still seeing today and the enactment of the Gramm Leach Bliley Act which broke down depression barriers between commercial and investment banking leading to the behemoths that we live with today. FinTechs will over time have a profound effect on the way credit unions and all financial institutions go about their business. Here are some questions I’ve been asking myself and some preliminary answers:
What is a FinTech Charter anyway? In 2003, the OCC amended §12 CFR 5.26 (e)(1). The new regulation authorized the creation of special purpose banks that do not engage in fiduciary activities but conduct at least one of the following core banking functions: receiving deposits, paying checks, or lending money. At the time the provision received little attention but it is this regulation that the OCC argues allows it to authorize special charters for companies that use computer platforms to process payments or lend money for example.
Why would companies be interested in a FinTech Bank Charter? As the New York Times explained this morning, tech companies have been advocating for just such a charter because they believe it will allow “online lenders and payment companies to more easily and directly compete with traditional banks, a change that one regulator said would allow innovative businesses to expand nationwide.” With a national charter, these companies will have one set of national rules. This has always been the appeal of a national charter.
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