Down Goes Frazier (FinTech)

Written By: Jay L. Hack


The knockout punch was in May when a federal judge decided that offering a national FinTech charter exceeded the OCC’s authority. The referee’s count reached 10 last week when judgment was entered against the OCC, paving the way for an appeal.

A few years ago, the OCC announced that it would accept applications for “FinTech” charters under the National Bank Act. FinTech is a vague term for companies that use modern technology to provide financial services. Examples include Venmo, which facilitates moving money electronically between friends, and Lending Club, a peer-to-peer loan “middle man.” The OCC grant of a federal FinTech charter would have preempted most state regulations of such companies. Congress put the kibosh on nonbank banks over 30 years ago when it defined a bank, for holding company purchases, as an entity that accepted demand deposits AND made loans. We all thought that this would have negated the OCC authority to create FinTech corporations that are banks in name only, with no deposits. The trial court has now confirmed that analysis.

This decision will be appealed. The fear, especially among community banks, is that nationwide FinTech charters will create more competitive disadvantages as new companies offer a nationwide platform to deliver financial services without the heavy regulatory burdens imposed on banks that accept FDIC-insured deposits.

Today’s Takeaway? This is more like a WWE Wrestling match, with three falls, probably ending in the US Supreme Court. For now, there’s nothing mandatory for you to do, but FinTech is coming, be it with national or state charters. We recommend that our clients keep aware of the state of the technology art, even if they don’t want to be early adopters. Know what advances there is in financial technology and be prepared to implement innovative programs when you can do so in a prudent manner.

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