Democratic Senators Criticize Fintech-Charter Plan

WASHINGTON—Two top Senate Democrats voiced concerns Monday about the national bank regulator’s plan to offer a federal banking license to financial technology firms, questioning whether the agency had the authority to do so, among other things.

In their letter to the Office of the Comptroller of the Currency, Sens. Sherrod Brown of Ohio and Jeff Merkley of Oregon said that Congress should be the one to oversee fintech firms and that “it is far from clear whether the OCC has authority to grant national bank charters” to institutions that don’t accept deposits.” The senators also said the new system would allow fintech firms to engage in “charter shopping,” avoiding both state-consumer protection laws and “the rules and regulations that would apply to a full-service bank.”

The OCC is taking public comments through Jan. 15 on how it should structure a special charter for fintech firms, which offer online loans, smartphone payments and other services.

Many state authorities and consumer groups have said they are concerned a federal charter would circumvent state consumer-protection laws such as interest-rate caps on credit. A federal charter does offer national banks pre-emption from certain state laws but OCC officials have repeatedly said that didn’t mean fintech firms could escape consumer-protection laws.

“We would urge the OCC to refrain from offering any alternative or special purpose charters,” wrote Sens. Brown and Merkley in a letter to Comptroller of the Currency Thomas Curry. “It is up to Congress to take action on these important matters, and while it does we would encourage the OCC to devote its resources to collaborating with other federal and state regulators to aid innovative financial services providers in navigating the current landscape of laws.”

Mr. Brown is the top Democrat on the Senate Banking Committee and Sen. Merkley was previously the top Democrat on the panel’s Financial Institutions and Consumer Protection subcommittee.

An OCC spokesman declined to comment on the letter. Mr. Curry has previously said the fintech charter would be a voluntary option and firms could still pursue state licensing requirements.

“Our statutory mission requires us to ensure that any bank that’s chartered or supervised by the OCC operates in a safe and sound manner” and that includes “fair treatment of consumers, including small businesses, to the betterment of their communities,” Mr. Curry said Dec. 2 as the agency proposed the fintech charter.

Still, Messrs. Brown and Merkley said they were particularly concerned that fintech firms that offer loans online could get a federal banking charter that might allow them to prey on consumers.

“Many state attorneys general are already fighting back against online payday lenders that circumvent state licensing requirements—a pre-emptive alternative charter would undermine many of these state-based payday protectionism,” the letter said. “Even if the OCC has no current plans to allow payday lending, it is impossible to know now the breadth of potentially predatory companies that might use a federal banking charter…to avoid consumer and small business protections enforced through state licensing requirements….”

The Conference of State Bank Supervisors, a trade group for state bank regulators, shares the senators’ concerns, said Margaret Liu, the group’s senior vice president and deputy general counsel. The OCC’s plan “will stifle innovation by arbitrarily picking winners and losers, once again pre-empt state consumer protection laws and expose the taxpayer to further risk,” she said.

Messrs. Brown and Merkley in July asked federal bank regulators including the OCC how they would effectively oversee fintech firms. Democratic Sen. Jeanne Shaheen of New Hampshire also joined the two senators in a request sent to the Government Accountability Office in April to review fintech and the regulatory framework for overseeing the industry.

The OCC has been viewed as the more aggressive federal regulator in the fintech space, having met with firms, international regulators and other parties with varying opinions since 2015 and releasing several reports on how to regulate fintech last year. The agency held two public meetings on the topic and ultimately decided to open a fintech office to take any requests and consider offering a fintech charter this year.

“Emerging financial technologies present challenges that Congress has failed to adequately study,” the senators said in their latest letter. “While the OCC’s leadership on these issues is indispensable, we believe that the OCC’s plan to offer alternative charters to nonbank and fintech firms as explained could upset the current financial regulatory structure.”