“License to Bank: Examining the Legal Framework Governing Who Can Lend and... (EventID=111057)
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On Tuesday, September 29, 2020, from 12:00 a.m. (ET) Task Force on Financial Technology Chairman Lynch and Ranking Member Emmer will host a virtual hearing entitled, "License to Bank: Examining the Legal Framework Governing Who Can Lend and Process Payments in the Fintech Age."
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This single-panel hearing will have the following witnesses:
• Raúl Carrillo, Policy Counsel, Demand Progress Education Fund; Fellow, Americans for Financial Reform Education Fund
• Everett K. Sands, Chief Executive Officer, Lendistry
• Arthur E. Wilmarth, Jr., Professor Emeritus of Law, George Washington University Law School
• Brian Knight, Director, Innovation and Governance Program, Mercatus Center
Overview
The novel coronavirus 2019 (“COVID-19”) pandemic has had a significant public health and economic impact in the United States. In a time of crisis, everyday American’s ability to receive government loans and benefits, bank in-person, and use of physical currency has shifted dramatically. As consumer’s adjust to the changes, it is unclear whether most consumers understand the difference in protections and oversight between “banks” and “technology companies” when participating in financial activities, like sending money to a friend. Technology companies are increasingly offering services lines that are financial in nature. While the process for obtaining a bank charter can take over a year; requiring applicants to provide regulatory authorities with information about their business plans, senior management teams, capital adequacy, and risk-management infrastructure, among other things, technology companies do not have a similar comprehensive federal form of regulation regarding their financial-related products and services. This hearing will examine the legal framework and regulatory scope governing the oversight of traditional banks and other commercial businesses – especially technology companies – engaged in financial activity and the effect on consumer protection, financial stability, and the traditional separation of banking and commerce.
Bank Charters available to Fintech and Commercial Companies
Fintech companies interested in the business of banking may choose to apply for a traditional charter, such as a national bank charter, and depending on the size, subject themselves to all the same requirements, limitations, and supervision as a national bank. As described below, they may also consider applying for a special purpose charter that the Office of the Comptroller of the Currency (OCC) has proposed, or seek approval from the Federal Deposit Insurance Corporation (FDIC) to receive deposit insurance for state regulated industrial loan companies (ILCs).
OCC’s Special Purpose National Bank Charters for Fintech Companies. This charter would allow fintech firms to engage in activities within the business of banking (trustee, executor, or an administrator of assets) or core banking functions (receiving deposits, paying checks, or lending money). In the white paper, the OCC expressed interest in using authority under the National Bank Act of 1865 (NBA) and the Home Owners’ Loan Act (HOLA) to grant Special Purpose National Bank (SPNB) charters to certain fintech firms and describing why such charters “may be in the public interest.” Since the OCC issued a white paper seeking public comment on a SPNB Charter for non-depository fintech firms in 2016, the proposal has been challenged by state regulators. In September 2018, the New York Department of Financial Services (NYDFS) filed a lawsuit in the U.S. District Court for the Southern District of New York challenging the OCC’s decision to begin accepting relevant applications. There, NYDFS argued the OCC lacked the statutory authority to charter non-depository institutions because such institutions are not engaged in the “business of banking,” and the agency’s decision violated the Constitution’s Tenth Amendment by infringing state sovereignty. In May 2019, the district court sided with the NYDFS, relying on a historic definition of the term “bank” (which includes only depository institutions) and agreeing that the NBA does not authorize the OCC to charter non-depository fintech firms, the court concluded the phrase “business of banking” unambiguously excludes non-depository institutions. The OCC has appealed the district court’s decision.
OCC’s Payment Charter. On May 29, 2020, Acting Comptroller of the Currency, Brian Brooks prioritized “enhancing the scope and relevance of the national charter.”....
Hearing page: https://financialservices.house.gov/calendar/eventsingle.aspx?EventID=406871