As online lending companies gain popularity, the Trump administration makes it easier for them to circumvent state regulations

Federal officials said on Tuesday they would make it easier for fintech companies to operate nationwide following a Trump administration report calling for sweeping regulatory changes to advance new businesses and services fintech.

Just hours after the Treasury Department unveiled its long-awaited findings, the Office of the Comptroller of the Currency announced that it was moving forward with a plan to begin offering national banking charters to innovative companies offering loans or online payments.

These companies would bypass state laws, which now govern most fintech and non-banking services.

Companies like San Francisco’s online lender SoFi have sprung up in recent years to take advantage of technology and provide consumers, especially younger ones, with new ways to manage their money and make payments at home. -beyond traditional bank accounts.

Most of these businesses do not fall under the existing banking system and regulatory framework largely designed years before the internet and smartphones.

“Companies that provide banking services in innovative ways deserve the opportunity to continue this business nationwide as a federally chartered and regulated bank,” said Currency Controller Joseph M. Otting, the one of the country’s main financial regulators.

However, companies that would get the new charters would not be allowed, like banks, to accept deposits that would be insured by the Federal Deposit Insurance Corp., the OCC said.

The Treasury report recommended that the OCC move forward with its plan to offer national fintech charters, saying they could “provide a more efficient and at least more standardized regulatory regime than the current state in which they operate. “

Lenders who wish to operate nationwide now have two options: obtain licenses from individual state regulators and follow 50 different sets of state loan laws, as SoFi has done, or grant loans. in partnership with a regulated bank, as does LendingClub. The new fintech charter would give businesses a third option, allowing them to bypass state rules, such as interest rate caps, without having to work with banks.

State regulators have opposed granting national charters to fintech companies. The Conference of State Bank Supervisors and the New York State Department of Financial Services have both filed lawsuits challenging the legality of the OCC authorizing national charters. The judges dismissed the lawsuits because the OCC has not yet granted any national charters to financial technology companies.

John W. Ryan, chairman of the Banking Supervisors Group, said the charter’s new policy was “a regulatory train wreck” and state regulators “are keeping all options open” to try to stop it. .

The fintech charter was just one of many controversial recommendations in the 222-page report, including developing national rules for data security and data breach notifications – and urging the Financial Protection Bureau of consumers to repeal the tough new rules nationwide on payday and other short films. term loans.

Treasury Secretary Steven T. Mnuchin said changes are needed to keep the United States competitive as the financial sector evolves.

“We need to keep pace with industry changes and encourage financial ingenuity to foster the country’s dynamic financial services and technology sectors,” Mnuchin said.

The Treasury report is the last of four reports that President Trump commissioned in early 2017 to review the country’s financial regulations.

The remaining reports covered the traditional banking sector, capital markets, and the asset management and insurance sectors. Congress incorporated some of the Treasury’s banking recommendations into bipartisan legislation enacted this spring that overturns some Dodd-Frank financial rules, primarily for small and medium-sized banks.

The latest report makes 80 recommendations to help businesses “adopt competitive technologies faster, protect consumer data, and operate with greater regulatory efficiency,” the Treasury Department said.

Among the proposed changes are:

  • Better enable digital communications, data sharing, and the use of cloud computing and machine learning while establishing a national standard for data security and consumer notification of data breaches.
  • Rationalization of the regulatory environment.
  • Modernize regulations to advance new services such as the further digitization of retail payments and the mortgage lending process.
  • Encourage technological experimentation by allowing companies to develop innovative services while temporarily exempting themselves from certain regulations.

The report shows that the Trump administration “is very receptive and open to fintech,” wrote Jaret Seiberg, analyst at brokerage and investment bank Cowen & Co., in a research note. But he urged caution in assuming all of the recommendations in the report will materialize.
Some changes, such as new data security and data breach notification rules, require action by Congress. Still, many of the fintech recommendations can be made by regulators, as the OCC did with the national charters on Tuesday. The agency has been considering such an approach since 2016.

The Marketplace Lending Assn., A trade group representing fintech companies such as SoFi, Avant and LendingClub, welcomed the Treasury recommendations and the OCC ruling.

“The OCC has just taken a big step forward in promoting responsible innovation and better access to capital for borrowers nationwide,” said Nat Hoopes, group executive director.

But Lauren Saunders, associate director of the National Consumer Law Center, warned that allowing financial companies to avoid interest rate limits “could open the floodgates” to predatory lending.

The proposal to repeal the payday lending rules, which the Trump administration has already called for, has also sparked opposition. Consumer advocates have strongly supported the rules, which were passed last year by the office under the leadership of Obama-appointed Richard Cordray.

Regulations require lenders to determine the ability of potential borrowers to make repayments and to limit to three the number of loans that could be made in quick succession to an individual borrower. There is no cap on interest rates.

Payday lenders and many Republicans are opposing the rules, which don’t come into effect until August 2019, arguing they will hamper access to credit.

Mick Mulvaney, who took over the interim leadership of the CFPB last fall, initially expressed support for a congressional effort to repeal the rules. But this effort never gained momentum. The office said in January that it intended to launch a new formal rulemaking process to reconsider the regulations, although it has not yet started.

“There is a tremendous amount of public support for the rule and no Congressional action or appetite to repeal the rule,” said Scott Astrada, director of federal advocacy for the Center for Responsible Lending.

He pointed to poll results released Tuesday by his group and Americans for Financial Reform which found that 79% of those polled supported CFPB rules holding payday lenders to account.

Twitter: @JimPuzzanghera


13:25: This article has been updated with comments from Lauren Saunders of the National Consumer Law Center and John W. Ryan of the Conference of State Bank Supervisors.

11am: This article has been updated with the Office of the Comptroller of the Currency’s announcement on nationwide fintech charters, along with comments from the Comptroller of the Currency Joseph M. Otting, Analyst Jaret Seiberg, Nat Hoopes of the Marketplace Lending Assn. and Scott Astrada of the Center for Responsible Lending.

9:10 a.m. This article has been updated with additional details on the proposed regulations.

This article was originally published at 7:10 a.m.

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David A. Albanese