From cyber litigation to crowdfunding regulations and securities challenges posed by initial coin offerings, technology has been creating legal and regulatory challenges at a rapid pace. The newest challenge - regulation of fintech companies, has state regulators at opposition with the OCC. For the last few months, the OCC has been attempting to proceed with a proposed national charter for fintech companies which would effectively recognize (and regulate) qualifying companies as “specialty” national banks. The proposed charter would shift regulatory authority from state regulators to jurisdiction of the OCC. It's important to note however that statutory and consumer protection laws may still largely still apply. In order to qualify, a fintech company would be required to meet some qualifying criteria. First, they must be engaging in “qualifying” activities which must include either; engaging in lending or financing, (check) cashing, issuing of payment cards, or processing of deposits. Secondly, in order to qualify, the company’s board must maintain at least 5 members.

While the charter may sound like a logical next step, and one that fintech companies may welcome, there is considerable debate regarding the benefits offered and actual interest among the fintech sector. The main advantage to fintech companies provided by such a charter is the easing of burdensome compliance requirements. By allowing for preemption under the National Bank Act, fintech companies would no longer need to file for individual state licenses which can be extremely costly. However, it also carries increased regulatory and compliance requirements/costs – most importantly, newly imposed capital requirements, increased exposure to AML laws, and hightened standards under Dodd Frank. The OCC argues that such a charter would serve to create a safer environment for consumers, promote growth, and ensure banking laws are applied more uniformly. State regulators and critics however, have been adamantly opposing such a charter arguing that the OCC is unlawfully overstepping its authority (based on their broader definition of banking activities), and arguing that state regulators are better equipped to regulate fintech companies.

With the charter being delayed due to heavy opposition, we may not see a final decision for some time, however it is a case that fintech companies should be paying close attention to. Those interested in the OCC’s report can read the entire report here.