No FinTech special-purpose national banks yet, says OCC

Chris Hamblin

15 September 2017

President Abraham Lincoln created the Office of the Comptroller of the Currency and with it the concept of a national bank charter. Consumers' preferences have evolved apace since then. Recently, the entry of 85 million 'millennials' into the financial marketplace has engendered a demand for thousands of technology-driven non-bank companies that take a new approach to products and services. Five years ago these services were either available only from traditional banks or not available at all. Initially, many of these non-bank service providers (among them financial technology—or fintech— companies) viewed themselves as competition for banks. Now, some are thinking of becoming banks.

The upshot of this trend, spurred on by the previous comptroller, was an initiative to grant special purpose national bank charters to fintech companies. There are many special purpose national banks in operation today, notably trust banks and credit card banks.

Any fintech company with a special purpose national charter that does not take deposits, and therefore is not insured by the Federal Deposit Insurance Corporation, will not be subject to laws that apply only to insured depository institutions. The OCC says that it can grant such charters under the National Bank Act and the Home Owners’ Loan Act.

The Conference of State Bank Supervisors, meanwhile, has been arguing for months that the creation of a special purpose national bank charter for financial technology (and other non-depository companies) would be bad because:

the OCC lacks the statutory authority to issue such a charter;
such a charter will distort the marketplace for financial services, with a federal agency arbitrarily picking winners and losers;
the issuance of such a charter would create tremendous uncertainty and risks pertaining to access to crucial government resources, including the payments system and the federal safety net; and
the pre-emptive effect of this charter would stop the states from protecting consumers.

The most damaging objection appears to be the first one, with the state regulators arguing that US courts have held that the Comptroller is prohibited from chartering a national bank that does not engage in deposit-taking, unless the charter is for a special purpose bank expressly authorised in statute. Congress, they say, has made no such authorisation.