Federal cards for Fintech: enhancement of the interferents, increased banking competition


On 31 July 2018, the Office of the Currency Controller ("OCC") announced the intention to accept domestic bank card applications for special purposes from non-custodial financial companies ("Fintech") . [1] This announcement coincides with the release of a Treasury Department report to support financial innovation and regulation of non-bank financial entities. [2] These announcements signal a significant change in the current banking market. On the one hand, announcements are good news for Fintech switches, as it opens a way to reach a national market despite sometimes hostile state laws. From the other side, for traditional banks, announcements are a further confirmation, if any, of the new emerging Fintech competition.

The response of the OCM to technological innovation in the banking sector

In recent years, Fintech has caused significant disruptions in the financial services sector. Working with banks and non-banking companies, Fintech companies have introduced new approaches to traditional banking products and services and completely new products and services using technology, data and connectivity. In general, Fintech avoids the costs of an extended physical presence of bricks and mortar, reaching large markets, using the Internet to provide products and services.

The OCC has extended national special purpose bank cards ("SPNBC") to Fintech companies eligible to bring these companies into the US banking regulatory system, which will in turn increase consumer protection , promote healthy competition and encourage technological innovation in the banking sector. In addition, by granting SPNBCs to Fintech companies, OCC will expand the supervision of technology-based products and services that are redesigning the banking sector. In return, Fintech companies based in OCC will be able to conduct business throughout the United States with a uniform set of regulations and supervisory standards without the need to seek multi-state licenses or partners with insured depository institutions, enjoying significant benefits of the federal preemption of many state laws under the National Bank Act.

Only a few Fintech companies can qualify for the National Bank card for special purposes of the OCC

Historically, a bank National for Special Purposes has been an "entity" that engages in a limited range of banking or fiduciary business, targets a limited customer base, incorporates non-traditional items or has a strictly targeted business plan. "[3] The OCC has issued for many years SPNBC for fiduciary institutions and banks with credit cards with little

In the current context, the OCC will make available SP NBC to those Fintech companies engaged in one of the two bank functions of payment of the checks or loan (including the activities interpreted by the OCC as equivalent to the same [4]), subject to approval by the ; OCC of a rental application (discussed below). However, the OCC will not take into consideration the candidacies of Fintech companies which provide for proposals to engage in deposit collection activities. [5] Fintech companies must apply to the Federal Deposit Insurance Corporation ("FDIC") for deposit insurance and request a full bank card.

Advantages of the SPNBC

As with a national bank, a Fintech company that obtains an SPNBC will be subject to the provisions on the licenses, the organization and the corporate structure of the Law on the National Bank. In addition, the same statutes, regulations, examination and reporting metrics and the applicable regulatory requirements applicable to national banks, such as legal lending limits, will apply to SPNBC Fintech companies. [6] Fintech companies operating as special purpose national banks will also be subject to other federal statutory regimes such as the Bank Secrecy Act and federal anti-money laundering regulations, as well as bans against unfair, misleading or abusive acts or practices. [7] A Fintech company that obtains an SPNBC engaged in consumer credit will also continue to be subject to federal consumer loan laws, such as the Loan Act, the Equal Credit Opportunity Act and the Fair Credit Reporting Act.

The Fintech company that obtains an SPNBC, burdensome state license by state, regulatory and oversight requirements – including state wear laws – will be a prerogative of the National Bank Act. [8] companies will not need to be authorized by state law to undertake any activity permitted under the National Bank Law. However, a Fintech company that obtains an SPNBC should expect that certain consumer and other consumer protection laws will continue to apply. Examples of state laws generally applicable to national banks include anti-discrimination laws, the equity loan, debt collection and foreclosure

The SPNBC Request Process

To obtain a SPNBC, a Fintech company must submit to the same de novo review process of applications as national banks, including an assessment if the company Fintech has a reasonable chance of success and (i) will operate in a healthy manner and, (ii) provide fair access to financial services; (iii) promote fair treatment of customers; (iv) ensure compliance with applicable laws and regulations; and (v) promote healthy competition in the market. [9]

The approval of the OCC of a The application of the Fintech company to obtain an SPNBC will depend on the applicant:

  • which presents a complete business plan that explains why an SPNBC is researched with significant details on the proposed activities; [10]

  • ability to meet minimum and ongoing levels of capital and liquidity in proportion to the risk and complexity of the activities proposed in the business plan [11]

  • by committing to providing fair access to financial services and fair treatment of customers, in line with the high standards imposed on traditional banks by the Community Reinvestment Act; [12] and

  • developing and committing to adhere to an emergency plan that includes various scenarios that could threaten the viability of the Fintech company. [13]

If approved for an SPNBC, the OCC will be subject to the recently chartered Fintech company to a scheduled supervision cycle, including on-site examination and regular off-site monitoring (like any bank de novo ). [14] This means continuous and rigorous oversight to ensure that management and board of directors are properly implementing their business strategy and Fintech meets performance and compliance targets.

Cost-Benefit Approach to the SPNBC [19659004] If a Fintech company should pursue an SPNBC from the OCC it requires a personalized cost-benefit analysis. If the OCC processes Fintech applications for SPNBC as strictly as the traditional de novo national bank card requests, the SPNBC process may take several months from pre-approval to approval. L & # 39; OCC has said that the proposals of the Fintech companies without consolidated accounting will be subjected to a more thorough check to assess the probability of long-term success.

Challenges by the state authorities of the banking sector

In response to the preliminary proposal of the OCC on the SPNBC and Fintech issued in 2016, the Department of Financial Services of New York and the Lecturers' conference of state-owned banks have filed several lawsuits challenging the authority of the OCC to release the SPNBCs to the Fintech companies. Those seeds were both archived based on the fact that OCC had not yet issued any national credit card for special purposes. The announcement of the OCC of the intention to accept the Fintech SPNBC applications paves the way for those parties to renew their opposition as soon as the first SPNBC is issued to a Fintech company, if not before.

Conclusion [19659004] The decision of the OCC to accept the SPNBC applications of the Fintech companies represents an opportunity for the participants of Fintech and the financial industry. Whether you're a Fintech consolidated company or contemplating a new business, Troutman Sanders is ready to help you navigate the SPNBC process.

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