Special Alert: OCC Takes the Next Step Toward a Fintech National Bank Charter

On December 2, 2016, the Office of the Comptroller of the Currency (“OCC”) announced its plans to move forward with developing a special purpose national bank charter for financial technology (“fintech”) companies. Accompanying the Comptroller of the Currency, Thomas J. Curry’s announcement, the OCC published a white paper that describes the OCC’s authority to grant national bank charters to fintech companies and outlines minimum supervisory standards for successful fintech bank applicants.[1] These standards would include capital and liquidity standards, risk management requirements, enhanced disclosure requirements, and resolution plans. Over the past several months, the OCC has taken a series of carefully calculated steps to position itself as the preeminent regulator of fintech companies in a hotly-contested race among other federal and state regulators who have similarly expressed interest in formalizing a regulatory framework for fintech companies. This proposal from the OCC reflects the culmination of those efforts.

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BuckleySandler welcomes questions regarding this new approach to fintech and banking, and would be happy to assist companies in determining whether a national bank charter would be beneficial for executing on their corporate strategies. Questions regarding the matters discussed in this Alert may be directed to any of our lawyers listed below, or to any other BuckleySandler attorney with whom you have consulted in the past.

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Financial Stability Oversight Council will hold its first post-election meetings on November 16

On November 16, Treasury Secretary Jack Lew will preside over a meeting of the Financial Stability Oversight Council (FSOC). The agenda will include both an open and an executive session. The preliminary agenda for the open session includes an update on the work of the Alternative Reference Rates Committee, an update on the council’s review of the asset management industry and revisions to the council’s regulations under the Freedom of Information Act. The preliminary agenda for the executive session includes a presentation on stress tests of central counterparties conducted by the CFTC, a discussion of confidential data related to the Council’s review of asset management products and activities, and an update on the annual re-evaluation of the designation of a non-bank financial company.

Open session Council meetings are made available to the public via live webcast and also can be viewed after they occur here. Meeting minutes for the most recent Council meeting are generally approved at the next Council meeting and posted online soon afterwards. Meeting minutes for past Council meetings are available here. Readouts for past Council meetings are available here.

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CFPB Reissues Guidance on Service Providers

On October 26, the CFPB published Bulletin 2016-02 on service providers to amend previously issued guidance covered in Bulletin 2012-03. Bulletin 2016-02 seeks to clarify that supervised banks and nonbanks have flexibility in managing the risks of service provider relationships. Specifically, the CFPB advises that “the depth and formality of the risk management program for service providers may vary depending upon the service being performed —its size, scope, complexity, importance and potential for consumer harm—and the performance of the service provider in carrying out its activities in compliance with Federal consumer financial laws and regulations.” The CFPB plans to post Bulletin 2016-02 on its website on October 31, 2016.

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CFPB Issues Warning Letters to 44 Mortgage Lenders and Brokers for Potential HMDA Reporting Failures

On October 27, the CFPB issued warning letters to 44 mortgage lenders and mortgage brokers informing them that they may not be in compliance with certain provisions of the Home Mortgage Disclosure Act (HMDA) and Regulation C. The warning letters state that the recipients may be required to collect, record, and report housing-related lending data, and that they may be violating those requirements. Under HMDA, financial institutions that meet certain criteria are required to collect and report data related to their housing-related activity, including home purchase loans, home improvement loans, and refinancings they originate or purchase, or for which the institutions receive applications. The letters recite HMDA’s coverage criteria for lenders who are not banks, credit unions, or savings associations, suggesting that the CFPB is particularly concerned about HMDA compliance for non-depository mortgage lenders. While the letters state that the CFPB has not made any determinations that the recipients are in violation of HMDA filing requirements, the letters urge recipients to review their practices to ensure compliance with the relevant laws, and encourage recipients to advise the CFPB if the institution has taken steps or will take steps to ensure compliance. The letters advise recipients of the CFPB’s authority to impose civil money penalties for noncompliance with HMDA. In October 2013, the CFPB fined a bank and a nonbank mortgage lender for filing inaccurate HMDA data. In October 2015, the CFPB finalized a rule amending the HMDA reporting requirements under Regulation C, with the majority of the provisions taking effect on January 1, 2018.

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OCC Establishes Office of Innovation

On October 26, the OCC announced plans to establish an Office of Innovation (Office) with staff located in Washington, New York, and San Francisco. The OCC simultaneously published a paper titled “Recommendations and Decisions for Implementing a Responsible Innovation Framework,” which provides an overview of the financial services landscape and the OCC’s innovation initiatives. With the expectation to begin operations in first quarter 2017, the new Office will implement certain aspects of the OCC’s responsible innovation framework, including: (i) creating an outreach and technical assistance program; (ii) conducting awareness and training activities for OCC staff, such as implementing an “internal web page that provides OCC staff a ‘one-stop-shop’ to access information on industry trends and innovative products, services, and processes”; (iii) encouraging coordination and facilitation among the regulatory community and industry stakeholders; (iv) conducting industry innovation research; and (v) promoting coordination with other agencies, particularly those with overlapping jurisdictions. Beth Knickerbocker will head the Office as acting Chief Innovation Officer.

The OCC noted that its “assessment of granting a special purpose national bank charter to nonbank financial technology companies, and under what conditions, continues.” Later in 2016, the OCC plans to publish a paper to address issues related to a potential special purpose charter.

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