Dem senators oppose charter proposal for financial tech companies

Two Senate Democrats are questioning a top federal bank regulator on its plan to offer special accreditation to technology companies that offer financial services.

Sens. Sherrod Brown (D-Ohio), ranking Democrat on the Senate Banking Committee, and Jeff Merkley (D-Ore.) say the Office of the Comptroller of the Currency’s (OCC) plan to issue special banking charters for financial technology companies could undermine efforts to regulate banks.

In December, OCC announced plans to offer special charters to certain financial technology (or “fintech”) companies. These charters would give approved fintech businesses federal recognition, hold them to strict federal banking laws and offer a way for them to avoid a lengthy state-by-state approval effort.

{mosads}The senators warn that the OCC proposal could disrupt financial regulations.

“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,” wrote Brown and Merkley in a Monday letter to Comptroller Thomas Curry. “We would urge the OCC to refrain from offering any alternative or special purpose charters.”

Fintech companies have expanded in prominence and popularity, offering online financial services through websites or smartphone applications. They include websites and platforms that offer basic banking services, along with smartphone applications that allow users to send and receive money the same way they’d send a text message.

Brown and Merkley argued that the proposed OCC charter undermines efforts to protect “financial stability, financial inclusion, consumer protection, and separation of banking and commerce that the OCC has upheld under your tenure.”

The proposed charter offers too many loopholes for certain financial technology companies to avoid federal regulation and goes against efforts to expand full banking services in underserved areas, Brown and Merkley wrote.

They argued that because fintech companies could receive charters for offering one or two specific services, the companies could then avoid the full slate of federal regulations banks must follow.

The plan “could also allow predatory alternative financial services providers to spread more quickly given the blessing of the federal government and elimination of state-based protections for working class Americans,” wrote Brown and Merkley.

Brown and Merkley also expressed concerns that federal approval of fintech companies could mislead consumers who are used to a fuller banking experience. They pointed to Equal Credit Opportunity Act and the Community Reinvestment Act as laws that push federally accredited banks to make positive social contributions.

Charter benefits are part of a trade for “social benefits [banks] return to the communities in which they operate,” wrote Brown and Merkley. “The OCC has not offered any examples of how an alternatively chartered firm could be required to provide all of these same social benefits.”

OCC has asked for public feedback on the proposal by Jan. 15.

This article was updated at 8:18 p.m.