UPDATED Consumer Groups Wrong to Oppose Fintech Charter

January 17, 2017 at 10:37 am Leave a comment

fintechWhen it comes to financial innovation, the financial industry can either lead, follow or get blown away;  nevertheless Consumer groups are opposing  OCC’s proposal to grant  special purpose charters to tech companies that want to provide limited banking services. Keeping in mind that the views I express in this blog are mine and mine alone, their reactionary opposition to the proposal envisions a world that does not exist and minimizes the important role technology can and ultimately will play in bringing services to the almost 20 percent of American’s who are underbanked.

In December, the OCC released a white paper outlining a framework for providing Special Purpose Charters to technology companies offering financial services. At this point we are dealing with a very general overview. The OCC contends that it can use its power to authorize special purpose banks to grant fintech charters to technology companies that want to offer core banking services, including, receiving deposits, paying checks or lending money. Depending on which one of these a company wants to take on, it may not even need deposit insurance.

Consumer groups and some legislators are concerned that this framework will permit payday lenders to offer their products even in states such as New York, where usury laws make payday loans illegal. In a recent letter signed by a large array of consumer groups including Arcade Credit Union, critics of this proposal argue that, as presently drafted “ the OCC , with the stroke of its pen, will put millions of people and years of state level enforcement at risk of exploitation by high cost lenders”. In addition, they argue that by giving these corporations a federal charter, state level enforcers, including AG’s will not have the ability to appropriately regulate their activities.

It is these types of well-intentioned but misguided arguments that drive me nuts about consumer groups. The world is not perfect. Even though there will undoubtedly be some companies that take advantage of a fintech charter to offer Payday Loans, this legitimate concern has to be weighed against the very real value of a more efficient banking system. For example, a fintech charter would make transactions cheaper by allowing corporations to offer services directly to consumers rather than work with a middle man. In addition, research indicates that the unbanked and underbanked are much more comfortable using a smart phone then going into a branch. If our goal is to help as many people as possible get banking services, then technology is the way to do it.

Finally, and most importantly the ship is leaving with or without regulation. fintech charters make sense, if only because anyone under the age of 30 is much more likely to use a mobile banking app than a branch.

One more thing, some of the same groups that are arguing against the fintech charter are the same groups supporting the CFPB’s Payday Loan Proposal. It seems to me that they can’t have it both ways. Either state level regulation of Payday Lending is adequate, in which case there is no need for national standards, or state regulation of payday lending can already be circumvented by consumers in need of a short term loan. I strongly suspect the latter is closest to the truth. Why should a framework that doesn’t work be used to block financial innovation?

Entry filed under: Regulatory, technology. Tags: .

America’s Bad Dream

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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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