Who Should Regulate FinTech Companies? OCC and CFPB at Odds

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Over the past decade, there has been rapid growth in technology-enabled financial services, referred to as FinTech. This growth has included the creation and expansion of nonbank FinTech companies, i.e., companies that do not have a banking license and generally do not take traditional deposits. This rapid growth has inevitably led to questions of how such FinTech entities should be regulated.  

Many, if not all, nonbank FinTech companies are subject to state law regulations. As a result, national FinTech companies must obtain a license in every state in which they operate. Such companies also must ensure compliance with each state's laws, which can cause a company's products or services to vary from state to state.

In 2019, the Consumer Financial Protection Bureau (CFPB) announced the establishment of a taskforce to examine ways to harmonize state and federal consumer financial laws. Among the issues considered by the Taskforce was the regulation of nonbank FinTech companies.  

In its final report released earlier this month, the Taskforce recommended that Congress enact licensing laws for certain nonbank FinTech companies so that such companies - in a manner similar to the way Federally chartered banks are regulated - are governed by the regulations only of their home states, even when providing services elsewhere.  

Further, the Taskforce recommended that authority to issue licenses and regulate such companies fall within CFPB's purview. According the Taskforce, putting CFPB in charge would "assure that consumer protection concerns are at the forefront." In the alternative, the Taskforce recommended that Congress allow the Office of the Comptroller of the Currency (OCC), which charters and regulates banks, to issue licenses to nonbank FinTech companies.

The day after the Taskforce's recommendations came out, then-Acting Comptroller of the Currency Brian Books issued a statement that the OCC, not the CFPB, should have the authority to regulate and license nonbank FinTech companies, citing its role in oversight of other financial institutions. In fact, the OCC has already claimed to have such licensing authority and has appealed a federal court finding to the contrary.  The appeal is pending in the United States Court of Appeals for the Second Circuit.

Argument in the appeal is currently scheduled for March, after President-elect Biden takes office, by which time there may be a new Comptroller who may take a different position on the OCC's authority. Regardless of the outcome of the OCC's appeal, Congress has the authority to adopt explicitly the Taskforce's recommendation that nonbank FinTech companies should be federally licensed and to specify the agency that has the authority to do so. 

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