Predicting Comptroller Otting’s Impact on Fintech
By: Scott M. Pearson and Daniel L. Delnero, Ballard Spahr LLP
Joseph M. Otting was sworn in as Comptroller of the Currency on November 27, 2017.  Mr. Otting is a seasoned bank executive who held senior positions at institutions such as CIT Bank, OneWest Bank, U.S. Bancorp, and Union Bank of California.  We anticipate that he will continue the approach of Acting Comptroller Keith Noreika, balancing the OCC’s consumer protection mission with its parallel duty to preserve the safety and soundness of the banking system and the institutions the OCC regulates.
Although the OCC focuses primarily on federally chartered banks, the agency also can have an important role to play with financial technology companies.  In that regard, we view Mr. Otting’s confirmation to be good news for Fintech, at least in some respects.
First, Comptroller Otting appears likely to be supportive of allowing Fintech companies to apply for special purpose national bank charters, referred to colloquially as “Fintech charters.”  Initially proposed by Comptroller Thomas Curry, Fintech charters would allow companies that engage in some, but not all, of the activities constituting the “business of banking” to apply to become national banks.  For example, companies that make loans but do not accept deposits could seek such charters.  The Fintech charter remains somewhat theoretical at this time, and under Comptroller Curry’s regime there were significant questions regarding the value of such charters, such as whether capital requirements would be so onerous that no Fintech company realistically could obtain one.  We anticipate that the OCC under Comptroller Otting is likely to employ a practical approach and craft charter requirements that may be attractive to some companies without sacrificing consumer protection or safety and soundness.
Second, Comptroller Otting may be helpful to Fintech companies in addressing important issues such as the Second Circuit’s decision in Madden v. Midland Funding and the so-called “true lender” issue.  For example, the OCC could adopt a rule or issue interpretative guidance: (1) providing that loans funded by a bank in its own name as creditor are fully subject to Section 85 and other provisions of the National Bank Act for their entire term; and (2) emphasizing that banks that make loans are expected to manage and supervise the lending process in accordance with OCC guidance and will be subject to regulatory consequences if and to the extent that loan programs are unsafe or unsound or fail to comply with applicable law.  (The rule should apply in the same way to federal savings banks and their governing statute, the Home Owners’ Loan Act.)  In other words, it is the origination of the loan by a supervised bank (and the attendant legal consequences if the loans are improperly originated), and not whether the bank retains the predominant economic interest in the loan, that should govern the regulatory treatment of the loan under federal law.
Finally, and perhaps less favorable to Fintech companies, we expect Comptroller Otting to address regulatory burdens on banks that have created opportunities for Fintech.  Many Fintech companies and alternative lenders have not really been competing with banks, but rather serving credit and other needs banks have been unable to address.  For example, as a practical matter, banks have been unable to make smaller loans to consumers and small businesses due to high regulatory costs.  We anticipate that Comptroller Otting may well take on these issues, and seek adjustments making it easier for banks to serve these important needs.  This would be very good for borrowers, but it could mean more competition for Fintech companies.