American Banker has reported that, in a press call last week regarding the OCC’s new risk report, “Semiannual Risk Perspective for Spring 2018,” Comptroller Otting stated that in July 2018, the OCC expects to announce its decision on whether it will issue special purpose national bank (SPNB) charters to nondepository fintech companies.
Under Acting Comptroller Keith Noreika’s leadership, the OCC defended its authority to grant an SPNB charter to a nondepository company in the lawsuits filed by the NY Department of Financial Services and the Conference of State Bank Supervisors (both of which were dismissed). Mr. Otting has not yet taken a public position on the OCC’s SPNB charter proposal. However, he has been dismissive of the argument made by opponents of the SPNB charter that it may lead to an inappropriate mixing of banking and commerce and has questioned the continuing need for the current barriers between banking and commerce.
American Banker reported that Mr. Otting also stated in the press call that some potential applicants for a SPNB charter have lost interest in obtaining a charter after learning more about the process for becoming a bank and seemed more focused on partnering with banks. According to Politico, Mr. Otting expressed concern in the press call about “rent-a-charter” arrangements between banks and non-bank entities. Mr. Otting was quoted by Politico as having said “We don’t believe that institutions should effectively lend their charter to a vendor.”
In its bulletin issued last week setting forth core lending principles and policies and practices for short-term, small-dollar installment lending by OCC-supervised institutions, the OCC expressed an unfavorable view of bank-nonbank partnerships, where the “sole goal [is] evading” state-law rate limits. We commented that while the context of the OCC’s view was “specific to short-term, small-dollar installment lending,” this apparent hostility to bank-model relationships should be of concern to all banks that partner with third parties, including fintech companies, to make loans under Section 85 of the National Bank Act. Mr. Otting’s reported comment about “rent-a-charter” arrangements exacerbates this concern to the extent it indicates there is indeed OCC hostility to arrangements that rely on the originating bank’s Section 85 interest rate authority even outside of the small dollar loan context addressed by the bulletin.
For state-chartered banks, state law interest rate limits are preempted by Section 27 of the Federal Deposit Insurance Act. Many bank partnerships with non-bank entities involve state banks and the FDIC, in interpreting Section 27, has generally tracked the OCC’s views on Section 85. As a result, the OCC’s views on bank partnerships should also be of concern to state banks entering into arrangements that rely on the originating bank’s Section 27 interest rate authority.