In recent interviews including a podcast with the ABA Banking Journal reported by Forbes, Acting Comptroller of the Currency Brian Brooks previewed the OCC’s plans to introduce another special purpose national bank charter that would give payment companies a nationwide servicing platform and federal preemption of state laws regarding licensing and regulation of money transmitters and payment services providers. As envisioned, the payments charter would replace the state-by-state money transmitter licensing approach currently used by many non-bank payment processors and FinTechs. More detailed information about the new OCC payments charter will be forthcoming in the near future, possibly by this fall, according to Acting Comptroller Brooks.

Acting Comptroller Brooks said the OCC envisions a two-phase roll-out of the new charter. The agency would first offer “Payments Charter 1.0”, which he likened to a basic national money-transmitter license. That version would be followed about 18 months later by “Payments Charter 2.0”, which would include the added feature of direct access to the Federal Reserve’s payments system, giving the payments company the ability to clear payments through the Federal Reserve System directly rather than through a correspondent bank, clearinghouse or financial institution. Acting Comptroller Brooks noted the OCC would work to ensure alignment with the Federal Reserve on the legal bases allowing Fed access by companies holding this special-purpose charter.

Acting Comptroller Brooks indicated that the core insight propelling development of the payments charter is the realization that consumers increasingly may not want to receive all financial services from a single source. He explained that while banks have traditionally provided three fundamental banking functions – deposit taking, lending, and payments – the evolving needs of financial services customers may call for a different approach. (In a recent online event, Acting Comptroller Brooks indicated the term “payments” is functionally equivalent to the more traditional formulation of “paying checks” when referring to this key banking activity.)  Acting Comptroller Brooks pointed out that while “the bundle [of three key banking services] will always have value“ in the context of many banks’ business models, in some cases companies may be more successful, and better serve their customers, by focusing on just one of these functions.

According to Acting Comptroller Brooks, a national payments charter would align with the OCC’s role, which is to create and support national financial services platforms. The proposed payments charter would bring entities that offer payment processing services, but do not take deposits or make loans, into the national banking system overseen by the OCC. Even without the direct access to the Federal Reserve’s payments system that Payments Charter 2.0 would add, the initial Payments Charter 1.0 would carry the significant advantage of federal preemption of state money transmitter licensing and related laws, and the element of OCC supervision would bolster customer confidence. And, the ability to provide payments services on a nationwide basis under a single national licensing regime, rather than dealing with licensing and other requirements on a state-by-state basis, would confer significant financial, operational, and other business benefits. Further, this charter, like the proposed OCC FinTech charter, may be attractive to entities that own payment processing companies but also engage in activities not permitted for bank holding companies.

Acting Comptroller Brooks cited other elements the OCC is considering as it formulates the new charter, including what a chartered entity’s community support and financial inclusion responsibilities should be and how best to establish safety and soundness requirements for companies that generally do not bear credit risk as it is traditionally viewed.

The proposed payments charter as described by Acting Comptroller Brooks would cover a narrower scope of services than the OCC’s previously proposed special purpose national bank charter for non-depository FinTech companies, and would not include nationwide lending authority. Therefore, the payments charter would not raise the controversial issue of interest rate exportation. Still, there may be opposition to the OCC payments charter from state banking regulators and licensing authorities as well as consumer groups who also opposed the OCC FinTech charter. In May 2019, a New York federal district court denied the OCC’s motion to dismiss a lawsuit filed by the New York Department of Financial Services (DFS) seeking to block the OCC’s issuance of the FinTech charter. The district court found that the term “business of banking” as used in the National Bank Act requires the receipt of deposits as an aspect of such business, and with the OCC’s and DFS’s consent, entered a final judgment in favor of the DFS, enabling the OCC to file an appeal. The OCC has appealed the decision to the Second Circuit; pending resolution of this appeal, it is reasonable to anticipate that an OCC payments charter may face a legal challenge based on the district court’s decision.

Further, bi-partisan support for this new charter would be required to avoid having the plan derailed by a regime change following the 2020 presidential election.