Financial Services Superintendent Maria T. Vullo today submitted a comment letter in opposition to the Office of the Comptroller of the Currency (OCC) proposal to create a new national bank charter for “fintech” companies. DFS, which was created in 2011 to reform the regulation of financial services in New York to keep pace with the sector’s rapid and dynamic evolution, has been a leader in responding to the regulatory needs of new technologies. DFS, as successor to the New York State Banking Department, for decades has licensed nonbank financial services companies, including money transmitters, online lenders, and virtual currency exchanges under state law.
“The OCC should not use technological advances as an excuse to attempt to usurp state laws that already regulate fintech activities where they intersect with banking and lending, whether depository or nondepository,” said Superintendent Vullo. “New York is the leader of innovation and will continue to promote small businesses and leaders in this field. However, a one-size-fits-all federal charter will not work to create a level-playing field among all financial services companies, or to alleviate risks. On the contrary, the proposal increases risk, creates an opportunity for regulatory arbitrage and attacks states sovereignty. New York will continue to protect our markets and consumers.”
In its letter, DFS argues the following;
- Unlike state regulators, the OCC has never regulated nonbank financial institutions. DFS licenses and supervises more than 2,000 banking and nonbanking institutions, many of which use technology as a core part of their business to lend or transfer money, including money transmitters, licensed lenders, sales finance companies, premium finance agencies, mortgage banks and bankers and virtual currency exchanges.
- The National Bank Act does not provide the OCC with authority to create this new proposed charter. The proposal threatens to create an entirely new federal regulatory program, creating serious regulatory uncertainty that threatens to invade state sovereignty and embolden those who may seek to evade strong state consumer protection laws.
- The creation of a national charter is likely to stifle rather than encourage innovation because it would be an avenue for larger, more dominant firms to control the development of technology solutions in the financial services industry, thereby harming existing banks and small businesses seeking to serve local communities.
- A national charter would encourage large “too big to fail” institutions, permitting a small number of technology-savvy firms to dominate different types of financial services simply because they are able to get a national charter.
- The recent financial crisis demonstrated that lax regulation on the federal level is devastating for our financial system and consumers
- The proposal could permit companies to engage in regulatory arbitrage and avoid important state consumer protection laws, such as strong usury protections.
- State regulators like DFS are experienced and therefore better equipped to regulate cash-intensive nonbank financial service companies which requires strict oversight and enforcement of anti-money laundering, consumer identification and transaction monitoring statutes and regulations.
DFS calls on state regulators, legislators, and other policymakers to oppose the OCC’s proposed special charter and support the nation’s strong state-based regulatory system.
A copy of the DFS comment letter can be found here.
