New Banking License Will Allow FinTech Start-Ups to Expand

James Rufus Koren reported in Saturday’s Los Angeles Times that, “Upstart financial firms such as Square, Lending Club and SoFi could soon have some of the same powers now held by their older, stodgier banking competitors.

The nation’s top bank regulator, the Office of the Comptroller of the Currency, said Friday that it would start issuing bank charters to online lenders, payment companies and other financial technology firms. The move could allow those firms to simplify their businesses, but also require them to undergo the same type of elaborate federal examinations now reserved for traditional financial institutions.

So-called fintech companies have pushed the OCC to allow them to seek federal charters, and the agency has been considering the move since earlier this year. In a speech Friday at the Georgetown University Law Center, Comptroller of the Currency Thomas Curry confirmed that the agency would move forward with the plan.”

The article added that, “Though the agency won’t start issuing charters until next year at the earliest, Curry’s decision could be a positive sign for fintech firms, which have had a rough year amid concerns over the quality of online loans and diminishing interest from investors. That has led to layoffs and cutbacks at some of the industry’s leading players, including San Francisco firms Lending Club and Prosper.”

Meanwhile, Nathaniel Popper reported in Saturday’s New York Times that, “The introduction of the licenses, called special purpose national bank charters, underscores how quickly so-called fintech firms are growing and how significant they are considered to the future of the financial industry.”

The Times article explained that, “Companies like Lending Club, an online loan marketplace, and Square, which allows small businesses to accept electronic payments, have been changing the ways Americans expect to receive financial services. These companies have also operated outside of some of the regulatory constraints on traditional banks.

“Regulators around the world have scrambled to keep up with the new developments and ensure that customers of the new companies are receiving the same protections they have had in the traditional financial system. Entrepreneurs have complained that existing regulations are stifling new innovation.”

And Wall Street Journal writers Peter Rudegeair and Telis Demos noted in an an article posted on Friday that, “Ken Rees, chief executive of online lender Elevate Credit Inc., said that the new charter could enable innovation, but partnerships between a bank and a fintech company would still offer big opportunities to provide better financial services to consumers. ‘I don’t think fintech companies have to go it alone to get the advantages we want because banks do a lot of things really well and fintech companies do a lot of things really well [and] those things don’t necessarily overlap.'”

On the other hand, the Journal update pointed out that, “Maria Vullo, the superintendent of New York’s Department of Financial Services, said that her agency would defend states’ ability to enforce consumer-protection laws, adding that it ‘opposes any effort to federalize what states have been doing – and doing well – for over a century.’ Ms. Vullo added that the OCC’s proposal ‘would be irresponsible if it were to ignore the states’ historical role and longstanding expertise in this arena.'”

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