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Why the first lobbying fight over financial technology is erupting over a year-old Washington agency. The grandly named Office of the Comptroller of the Currency is one of the oldest agencies in Washington, set up during the Civil War to help build a national banking system and strengthen the dollar. Predating even the Federal Reserve by 50 years, it has long served an important if relatively obscure role overseeing American finance. But inthis venerable agency has suddenly become the center of the first big battle between traditional banks and a new industry that even its most visionary founders would have had trouble imagining.
The so-called "fintech" industry—a tech-driven explosion of startups offering bits of the services that banks traditionally provide—is at odds with established banks over a bureaucratic duty the agency has performed since Charters are powerful documents that allow banks to offer loans and take deposits in multiple states without having to comply with a patchwork of state regulations.
And the new tech upstarts are eyeing these old documents with some jealousy. Fintech firms use mobile phones, websites and other technology to deliver consumers banking services like loans or money transfers—without performing all the other duties of banks.
Right now, to operate nationally they need to undertake the long, expensive quest to get permission from each state they want to operate in—or piggyback on a mainstream bank in order to use its charter. This past spring, the comptroller of the currency, Tom Curry, announced that the regulator would consider something new: It's not yet clear what he has in mind, but he has suggested that some kind of guidance is expected this fall, possibly as soon as October.
The prospect has launched a decidedly old-school fight around a new-wave business, and brought a parade of lobbyists and lawyers trooping into the OCC offices.
A charter, in giving a bank permission to operate, also helps set the bar for regulations that it has to meet. Fintech firms, for their part, feel that a full slate of banking regulations is unnecessary—and worry it would strangle their industry in the crib. Like many regulators in a changing industry, the year-old office finds itself in the middle of a tug of war between two kinds of business that see those risks in very different ways.
Open the door too wide to fintechs, and the government could end up putting excessive competitive pressure on traditional banks, not to mention the possibility that a new tech upstart could present new risks to the financial world. But if the charter is written too narrowly, the OCC could stifle new companies that make borrowing or sending money cheaper and easier for everyone.
At the center of a classic lobbying fight are millions of Americans who use the services, and a philosophical question that fintechs have forced Washington to confront: What exactly is a bank? Charters set the terms that help keep banks stable and money safe: But the new breed of fintech lenders looks more like the lucrative parts of a bank sliced off from the boring, cumbersome parts. The two largest U. All have made billions of dollars in personal loans of varying types since they started.
However, in order to operate nationally, they either have to partner with a chartered bank, which technically originates the loans, or register for a lending license in each state. In the past year a new crop of fintech trade associations have sprung with remarkable speed: They join groups such as the Electronic Transactions Association and the Small Business Finance Association, which also represent the interests of some online firms; individual companies have also hired their own lobbying shops on their own.
The emerging conflict between banks and fintechs bubbled into the open at an industry event last January. And it then led to a peculiar exchange with an outsider in the room: Richard Neiman, a former New York bank regulator and current head of government affairs for Lending Club, the first of the new wave of consumer lenders to go public.
Neiman raised his hand to ask what fintech firms, like the one he represents, could do to improve relations with banks. He was alluding to the sales pitches that fintech startups have been making to consumers, which have amounted to some pretty direct challenges to banks. Much like Uber and the taxi companies, the fintech firms are trying to disrupt a well-entrenched system.
In the months since Curry first announced his plans to write a new kind of charter, lobbying records show all the major financial trade associations have made the trek to the OCC, and industry lobbyists say fintech has been on the agenda for every one of the meetings. Small banks have emerged as the point of the spear, given that they consider themselves to be the most vulnerable to fintech advances. Their influential trade group, the Independent Community Bankers of America, has lobbied Curry and his top policy staff to require any fintech firms to obey all of the same regulations, such as capital requirements, that banks must comply with under an OCC charter.
Now some community bankers say a new fintech charter will further legitimize their online competitors—and just make the tech upstarts more attractive acquisition targets for the big banks, which have been siphoning away community banking customers for years.
Individual companies have also been in to meet with staff at the regulator. The two sides are sparring over a host of issues, from the technicalities of capital ratios to whether, and how, an online lender would comply with the Community Reinvestment Act, a law that requires banks to lend in low- and moderate-income neighborhoods.
Because the CRA predates the internet, it's not clear how its focus on deposits and lending within a specific geographic area could apply to an online lender.
The agency recently took a step that may indicate how it would handle a key issue raised by an eventual fintech charter. In mid-September, the OCC issued a proposed rule for how a noninsured bank that has a charter should be wound down after it failed, and Curry said the same process would be used on fintechs—if they end up getting a charter. What that means for traditional banks and their customers is hard to predict.
The Agenda Future of Money.