In an age where everything from ordering a pizza to planning a wedding can be coordinated by a suite of apps and online services, traditional banks have stubbornly maintained control over their jurisdiction of loans and credit. While fintech companies have begun offering their own loans and credit cards to consumers, these upstarts face the challenge of complying with a long list of rules and regulations laid down by the federal and state governments.
It's a hurdle the Treasury Department's Office of Comptroller and Currency (OCC) significantly shortened recently by announcing a new national charter that would allow online lending and other fintech companies to operate nationwide as banks themselves, giving consumers in the market for a personal loan or credit card more options outside of going to established banks. "The federal banking system must continue to evolve and embrace innovation to meet the changing customer needs and serve as a source of strength for the nation’s economy,” said Comptroller of the Currency Joseph M. Otting in a statement about the new charter. “The decision to consider applications for special purpose national bank charters from innovative companies helps provide more choices to consumers and businesses, and creates greater opportunity for companies that want to provide banking services in America."
Online lending companies still have to pass federal government guidelines and its own rigorous regulations before receiving the charter. For example, any online lending company needs to prove it can make good on its obligations to borrowers even if the national economy enters another recession, and companies founded relatively recently will receive more scrutiny.
The new charter has its share of detractors who worry that sweeping aside the patchwork of state regulations can eventually spell trouble for the national economy and individual borrowers. "Fintech charter decisions would place the federal government in the business of picking winners and losers in the marketplace," John Ryan, president of the Conference of State Bank Supervisors, said in a statement. "Let us not forget that the last time the OCC preempted state consumer protection laws in a sweeping manner—in the early 2000s—predatory lenders were let off the hook and contributed to the largest number of home foreclosures since the Great Depression."
Whether fintech and online lending companies bypassing state regulations to operate on the national level will give customers new loan options traditional banks have neglected or create another economic downturn remains to be seen. It's a development both borrowers and regulators will want to keep a close eye on as fintech companies start filing applications for the charter.