Joseph Otting, comptroller of the Office of the Comptroller of the Currency, testifying June 2018. Credit: Diego M. Radzinschi / ALM

A top regulator predicted Wednesday that financial technology firms would begin to apply as early as the next month or two for specialty national banking licenses, saying the industry has largely been undeterred by a pending legal challenge to the federal government’s plan to provide a pathway for online lenders and payment companies to more directly compete with traditional banks.

Joseph Otting, the head of the Office of the Comptroller of the Currency, said he was “disappointed” that the New York Department of Financial Services and other state regulators renewed their legal challenge to the agency’s plan to accept national bank charter applications from so-called fintech companies. Speaking at the Georgetown University Law Center, Otting voiced confidence the OCC would prevail in court and said the lawsuit was “harming consumers.”

Meanwhile, the OCC plans to accept and review applications from financial technology companies, Otting said.

“A number of entities have decided that it’s still worth going forward. And so I think that we will issue charters independent of their action. I also think that we will get our day in court on this issue,” Otting said.

The OCC expects to receive the first charter application from a fintech company “either later this year or the first part of next year,” Otting said.

After the conference, when asked whether the legal challenge was suppressing interest in applying for bank charters, Otting suggested the fintech industry has been unfazed. “I think people are aware of it. Most people who have gone to their law firms and have asked their opinion would say it clearly is within the authority of the OCC to do this,” he said.

For online lenders and other fintech companies, a national banking charter is an attractive prospect. Such a charter would free those firms from having to go through the patchwork of state-by-state approvals they presently need to offer loans and provide other financial products.

In September, the New York’s state financial regulator, Maria Vullo, challenged the OCC’s authority to offer national bank charters, calling the move to begin accepting applications “lawless, ill-conceived, and destabilizing of financial markets.” The lawsuit also argued that the OCC’s move “puts New York financial consumers—and often the most vulnerable ones—at great risk of exploitation by federally-chartered entities.”

Otting pushed back against those claims Wednesday, saying it was New York’s Department of Financial Services and other state regulators who were harming consumers by limiting their choice of financial products.

“First of all, let me tell you, I was very disappointed. I have always believed in the dual banking system, where a financial institution can choose whether to be state regulated or federally regulated,” Otting said. He continued: “And our whole banking system in the U.S. is predicated on giving management, boards and investors the choice of the type of charter they would like to have. And so I think the actions by the states are really restricting consumer choice, because there are certain entities that will not enter certain states because they want to operate under one set of rules, one set of processes.”


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