Firms OK’d to seek bank charters

Financial-technology firms in the United States will be permitted to apply for special bank charters under a regulatory policy change that Republican lawmakers already have warned against.

The Office of the Comptroller of the Currency will open its doors to nontraditional financial companies that are willing to meet some of the rigors of regulated banking, including capital, liquidity and consumer-protection rules, according to a draft policy statement released Wednesday.

“Providing a path for fintech companies to become national banks can make the financial system stronger by promoting growth, modernization, and competition,” the agency said in a document explaining its decision.

Its action amounts to rejection of a request from House Financial Services Committee Chairman Jeb Hensarling and other Republicans on the panel, who said in a letter that Congress would consider overturning any change if the agency insisted on rushing.

The draft policy — open for a 30-day public comment period — would not allow products “with predatory features” or that inappropriately mingle banking and commerce. The agency also defended its legal authority to make the move without a new law from Congress or any formal rule process, saying it’s doing nothing more than expanding a longstanding practice.

Comptroller Thomas Curry delivered a similar argument at a financial-technology event last week, saying his agency was within its legal powers to grant the limited charters in the same way it has been doing it “for decades” with other types of specialized firms that limit their business to a narrow aspect of banking. He said this wouldn’t be a “ticket to lighttouch supervision.”

Hensarling’s letter to Curry, dated Friday, said the Office of the Comptroller of the Currency needed to give the public a chance to respond and to let the next comptroller weigh in. Curry’s term expires next month, and President Donald Trump will be able to nominate a replacement.

“We will work with our colleagues to ensure that Congress will examine the [Office of the Comptroller of the Currency’s] actions and, if appropriate, overturn them,” Hensarling said in the letter, though it’s not clear how Congress would overturn something that isn’t a formal rule. The agency did meet one of the letter’s requests: to allow for more comment.

Democrats, including Sen. Sherrod Brown of Ohio, also have expressed concern about the Office of the Comptroller of the Currency’s financial-technology charter plans, raising questions about whether the agency has the legal authority to issue them. It’s up to Congress to take action on financial technology, not the agency, and a charter could allow predatory practices to spread more quickly, Brown wrote in a January letter to Curry.

A special charter marks one of the most significant steps by U.S. banking regulators to try to bring technology firms more under the government’s watch. The Office of the Comptroller of the Currency, like other regulators, is under pressure to promote safety without stifling innovation.

Many new technologies have popped up without the government restrictions that established financial firms are subjected to. While the charter won’t be required for firms to keep lending, the government is under pressure to provide a framework that companies also will want to use.