The office of the currency controller is threading a treacherous needle.
He said he plans to evaluate the applicants for a fintech charter based on their fair lending efforts, but has pulled back on specifics for how that process could work. This has made some groups of consumers nervous.
The OCC published an updated version of its supplement to the license manual for fintechs on July 31, in connection with an announcement that began accepting applications for fintech cards. It is an important step forward for an agency that has been grappling with its role in overseeing the nascent fintech industry for years.
However, the updated guidelines seem to remove key details about how the agency will address the financial inclusion efforts of a fintech, compared to a previous draft handbook published last March by the former conductor Thomas Curry.
"The biggest concern for us is the unequivocal weakening of responsibility for these specialized national banks when it comes to financial inclusion," said Scott Astrada, director of federal defense at the Center for Responsible Lending.
For its part, the OCC says it has changed its manual language from the previous project on the basis of continued work and feedback received on the matter, according to agency officials interviewed by American Banker.
Steve Lybarger, vice licensor for licensing, emphasized "the seriousness of the agency in its commitment that these candidates have a commitment to financial inclusion appropriate to the business plan and the activities they will conduct."
"In no way, between the original draft and the final supplement, there is the intention of the agency to reduce this commitment in the future," he said.
This aligns with the agency's comments in its official policy statement, published together with the updated manual: "By providing a high standard similar to the expectations of the Community Reinvestment Act for national banks collecting insured deposits, & # 39; commitment to financial inclusion will help ensure that all national banks offer fair access to financial services and treat customers fairly. "
But for consumer advocates and civil rights groups, the removal of such additional clarity It is worrying because it effectively leaves the regulatory authorities as an inclusion, with little public transparency.
"It appears, at least in terms of responsibility, that they have softened the touch – and we are worried about that," said Jesse Van Tol, managing director of the National Community Reinvestment Coalition.
Rep. Maxine Waters, D-Calif., A member of the Financial Services Committee, said in a statement Wednesday that she was "particularly disturbed by the fact that these new fintech cards are subject to weaker requirements for community reinvestment" compared to previous iterations of the agency's guide.
Critics refer to four steps removed from the manual:
- Page 4 of the original draft quotes a comment period on financial inclusion plans: "As described below, the OCC will condition its preliminary approval of a SPNB card on the applicant for implementation of a financial inclusion plan (FIP) As a result, a candidate is expected to include an FIP in his business plan and publish it for comment. "
- On page 20, the previous manual emphasizes the role of community involvement: "The OCC recognizes that contact with the community and consumer interested groups can be particularly useful in determining these financial needs of the community."
- Page 21 of the original manual highlights the need for charter applicants to address efforts to ensure non-discriminatory commercial practices, including full disclosure of terms and conditions, such as par of the factors to be examined by the agency: "How the policies, procedures and practices of the SPNB, including those described in its compliance management program, are designed to ensure that products are and services are offered and provided in a fair and non-discriminatory manner, with full disclosure of terms and conditions to all customers and in accordance with applicable laws and regulations. "
- Page 22 details the expectations that the public will have the opportunity to comment on the implementation of a financial inclusion plan and update it:" The PIF should address the way in which the SPNB will continue to meet the needs of the market and community affected beyond the initial years after a card has been approved, including how the SPNB will do the following: [a] Communicate and receive public input regarding its progress in the execution of its FIP; [b] Updating or modifying your FIP in appropriate circumstances, including significant deviations to your business plan, products or services offered, markets and relevant communities served; [c] Obtaining, considering and addressing public input in relation to updates of its FIP, when appropriate. "
OCC officials said that while revising the draft of the manual, they came to recognize the importance of maintaining the greatest possible flexibility in the process to accommodate the diversity of businesses that might require a charter in the future. They use the term "financial inclusion commitment" instead of "financial inclusion plan" in the final manual.
"Throughout the document, we have tried not to link ourselves to specific procedures in a way that would not be adaptive to the type of models. of business that we will see coming, "said Donna Murphy, vice controller for compliance risk policy.
Officials also pointed out that while the manual is there to provide guidance, it is not necessarily exhaustive.
" The fact that in the final draft [something] is not explained in this way does not mean that it is not the expectation and that we will look and expect to see in granting the appr Preliminary ovation, as well as final approval, for these statutes, "said Lybarger, pointing out that other OCC documents set the standards that would be expected from any institution granted a charter from the agency.
The agency attributes changes to the manual to an evolution in thinking about its purpose.
"It's a slightly different direction – I think that in the draft we felt like a document to several recipients and, when we really got closer, we felt that the integrator really was an element of orientation for potential candidates and we narrowed the public at this.In no way this should be regarded as a decrease of any kind of expectations with respect to the commitment to financial inclusion, "said Lybarger.
The approval of a fintech card will follow a two-step process. Firstly, the companies concerned will submit an initial application, the public parts of which will be published online for a period of 30 days of comments.
This application should contain "an in-depth discussion of how they will approach their commitment to financial inclusion," said Lybarger. "We have to go away believing that the organizational group understands our expectations for the commitment to financial inclusion and that they are able to implement a commitment in the organizational phase and the policies and procedures to implement it appropriately."
Following preliminary approval, companies will need to further investigate the policies and procedures they intend to use to meet this commitment to financial inclusion. Such details will not be made public as obvious, although officials have said that the agency may choose to do so at its discretion.
Typically, new banks do not need to publish their CRA comment plans as part of the second phase of the application process, even if those plans become public once a bank is up and running.
Consumer groups and community bankers have pushed the OCC to adopt rigorous standards such as the EU reinvestment law for businesses that obtain a fintech card (as well as claiming that OCC does not have legal authority to issue such cards to all). Over the years, the CRA has been an important tool for advocates of banks' pressure to do more to help their local communities, which is why external groups are keen to maintain similar control when it comes to rented fintech firms. from & # 39; OCC.
at its center says that a bank must be sensitive to the needs of the community, and therefore measurement has not historically been defined as an exercise between a bank and its regulator, "said Van Tol." This was used by community groups to encourage banks to change the way low and moderate income communities are served. "
Ultimately, OCC officials and observers have also stressed that the first fintech applications will likely represent the best testing ground for how this process will work in practice.
"Fireworks will begin when someone actually applies and publishes an application notice," said Sanford Brown, partner of the law firm Alston & Bird. "There is still a lot of details to be developed and that will come in the application process – which will be a bit of an iterative process."