Is A Fintech Charter On the Horizon?

October 17, 2016 at 9:06 am 2 comments

The most interesting statistic I heard last week at the Association’s annual Northeast Economic Forum was that 48% of new mortgages last year were originated by nonbanks. Technology has come to mortgage lending and the companies that emphasize electronic mortgage applications and processing are beating the pants off lenders that rely on having people apply at their brick-and-mortar branches.

I was thinking about this factoid this morning as I read an interview with the OCC’s General Counsel, Amy Friend, in the American Banker.  The OCC is rolling out plans for creating a special charter for fintech companies. Now here is a regulator that sees the writing on the wall and wants to remain relevant.

Why would companies want to be regulated by the OCC? The OCC says that the idea has appeal to a lot of  companies that don’t want to be regulated by fifty different state regulators.  Anyone who has taken a look at New York’s proposed cybersecurity regulations can understand why.

She explains that “We can provide a single charter with some uniformity, and that makes it very appealing. But, we also take that authority very seriously, and understand its implications. The comptroller has made it clear that if we decide to grant a national charter in this area, the institution that receives the charter will be held to the same high standards of safety, soundness and fairness that other federally chartered institutions must meet.” She further explains that institutions might want to get both a traditional bank charter and take deposits in which case they will also need to be regulated by the FDIC. Why not the NCUA as well?

The plan is still in the conceptual stages but in March the OCC released a white paper on supporting financial innovation in the banking system  and last month it proposed regulations clarifying its  authority to wind-down bankrupt  non-depository financial institutions  that are not insured by the Federal Deposit Insurance Corporation . The regulation is seen as a first step in explaining how the OCC could oversee bankrupt Fintech charters.

More on Navy

In Thursday’s blog I highlighted the CFPB’s consent order against Navy Federal and the impact it could have on credit unions who suspend services to members who have caused them a loss. Judging by the number of readers I really hit a nerve.

According to the Bureau, it was an unfair and deceptive practice for Navy to freeze electronic account services to members who were delinquent on loan payments. That simply isn’t true-at least according to the NCUA.  To add a little fuel to the fire here is a 1997 opinion from the NCUA in which it explains that credit unions may restrict services to members who are delinquent:

“In the past, we have allowed for suspension of services when the member caused a loss as a result of bankruptcy, an NSF check or a charged-off loan, but we have never addressed the issue of a delinquent loan. You advise that a delinquent loan increases the FCU’s collection costs resulting in a loss to the credit union. As long as the FCU has a rational basis for limiting services, we would have no legal objection.”

So how can Navy be fined, in part, for adopting practices explicitly authorized by its primary regulator for almost thirty years? Is this another example of CFPB overreach? Inquiring minds want to know.

Entry filed under: General, Legal Watch, New York State. Tags: , .

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2 Comments Add your own

  • 1. Keith Leggett  |  October 17, 2016 at 10:03 am

    Hi Henry:

    I think you discussion about the freezing of accounts at Navy are more nuance than you make it seem.

    According to the order, Navy froze members access to the accounts without providing adequate notice to the members.

    Also, Navy did not make exceptions for accounts containing protected federal benefits, such as Social Security income or veterans’benefits.

    Furthermore, the injuries to members were not reasonably avoidable because policies and practices regarding electronic access and service restrictions were not adequately disclosed at the time the account was opened.

    Keith

    Reply
    • 2. Henry Meier  |  October 17, 2016 at 11:37 am

      Hi Keith,It’s possible that Navy’s actions are distinguishable but Paragraph 83 of the order mandates that Navy not impose service restrictions on delinquent or overdrawn account. It makes no exception for situations in which the member is given notice. At the very least NCUA and the CFPB have to explain how Navy’s practices are distinguishable from authorized practices

      Reply

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Authored By:

Henry Meier, Esq., General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association.

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