A task force developed by the CFPB gave a recommendation that Congress should consider giving authority to the bureau, instead of the Office of the Comptroller of the Currency, to issue federal charters to fintech companies involved in lending, payments, or remittances. The five-member task force, established in 2020 to identify the conflicts and gaps in consumer finance law, released a report on January 95, 2021 with over 100 recommendations to CFPB, federal lawmakers, and the state and federal regulators that it cited were aimed at strengthening consumer protections, encouraging competition, and reaching unbanked consumers.
One of the main recommendations was that Congress should create a federal charter that allows nonbank fintechs to operate anywhere in the country under the same rules as banks and other firms with similar products and services. “Regulatory uncertainty and unnecessary regulatory costs threaten to inhibit FinTech-based innovation,” the task force said in a 100-page report.
Lawmakers could grant chartering power to the CFPB or clarify the OCC’s ability to issue such charters, the report indicated. However, it seemed to favor putting the authority in the hands of the CFPB because of its bent toward consumer protection, it indicated.
“There is an opportunity for the CFPB to be an even more powerful force to promote consumer protection and welfare, to be a chartering entity for fintechs,” Todd Zywicki, the task force’s chair and a law professor at George Mason University’s Antonin Scalia Law School, told American Banker on Tuesday. “It’s a logical place to do it and its natural for it to be done on a national basis.”
The OCC created a special-purpose fintech charter in 2018, but it was brought down by states and no companies have sought it since. Currently, nonbank fintechs are subject to state laws and are required to register or get licensed in every state they operate. According to the report, compliance with different state licensing and usury laws is posing as a huge hurdle for fintechs.
“A company with a nationwide footprint thus may need 50 separate licenses and adjust its practices to conform with each state’s laws,” the report said. “As a result, a non-bank FinTech lender would be subject to different maximum-allowable interest rates depending on the state, whereas a federally chartered bank providing the same service could charge the interest rate that its home state allows, regardless of the consumer’s location. These costs, and the competitive disadvantages from a segmented regulatory regime, are significant.”
The taskforce further recommended that CFPB adopt a self-regulatory fair lending program to solve the problem of discrimination in auto lending. Several auto dealerships have adopted the program voluntarily, as the report cited that it could serve “as a valuable compliance option” for fulfilling the requirements of the Equal Credit Opportunity Act.
The report further recommends that the bureau adopts the Federal Financial Institution Examination Council guidelines on civil money penalties. The guidelines include a “matrix” of factors currently used by other federal regulators for assessing fines against bad actors that is meant to make the penalties consistent and transparent.