Pub. 12 2017-2018 Issue 5

NEBRASKA BANKERS ASSOCIATION 13 Counselor’s Corner — continued on page 14 COUNSELOR’S CORNER FINTECH CHARTERS: SILENCE, BUT STILL ALIVE? Jeff Makovicka, Kutak Rock LLP S INCE MARCH 2017, THE OFFICE OF the Comptroller of the Currency (OCC) has been relatively silent on the issuance of special-pur- pose national bank charters, known as fintech charters, 1 to financial technology, or fintech, firms. Suits by state regulators have created some recent noise. Resolu- tion may have to wait until fintech char- ters go live. InMay 2017, theNewYorkDepartment of Financial Services (NYDFS) sued the OCC in the U.S. District Court for the Southern District of New York (SDNY) based on the argument that the OCC lacks the authority to issue the charter, since the fintech charter would not concern the “business of banking,” which includes the taking of deposits. 2 The Conference of State Bank Supervisors (CSBS) filed a similar suit in the U.S. District Court for the District of Columbia (DDC). 3 OCC Fintech Charter By way of background, in August 2015, the OCC announced its intent to develop a “framework to evaluate new and innovative financial products and services." 4 According to the OCC, that effort was necessary to address the per- ception that it is “too difficult to get new ideas through the regulatory approval process.” 5 In September 2016, the OCC announced that, as part of its innovation initiative, it was “considering how best to implement a regulatory framework that is receptive to responsible innovation, such as advances in financial technology,” and “whether a special purpose charter could be an appropriate entity for the delivery of banking services in new ways." 6 In December 2016, the OCC requested public comments on “whether it would be appro- priate for the OCC to consider granting a special purpose national bank charter to a fintech company.” 7 In March 2017, OCC Comptroller Thomas Curry announced the OCCwould be issuing fintech charters “because it is good for consumers, businesses, and the federal banking system.” 8 In the same month, the OCC issued a Draft Supplement to its LicensingManual which provided more detail on how fintechs ap- plying for the fintech charter would be evaluated. 9 In May 2017, Curry stepped down from his position and President Trump named Keith Noreika as acting OCC comptroller. Joseph Otting has since been confirmed by the Senate and was installed as the new comptroller on November 27, 2017. The proposed fintech charter has been controversial from the beginning. The CSBS, as well as many states such as New York have been highly critical and have argued that the OCC lacks the authority to issue the fintech charter. State regula- tors worry that the fintech charter will allow fintechs to avoid many of the rules that banks must comply with. According to the CSBS, the fintech charter “lacks transparency, will preempt important state consumer protections, and will slow business innovation by advantaging larger players over small firms." 10 “State regula- tors are firmly opposed to any expansion of the comptroller’s chartering authority [enabling] wholesale preemption of state oversight and consumer protection laws for a group of entities conducting activi- ties that are only loosely related to bank- ing." 11 A turf battle is brewing. Legal Challenges Two weeks after the comment period for the Draft Supplement expired, the