The Trump administration embraced an emerging corner of the
financial sector on Tuesday, telling companies that offer new ways to bank and
invest that the federal government wants to help them grow.
The Treasury Department in a report recommended that
regulators adopt changes it said would better support such financial companies.
It recommended a “sandbox” giving regulatory
financial relief to startups; encouraged the federal consumer
regulator to rescind its payday-lending rule; pushed for a fresh look at rules
governing fintech investments by banks; and endorsed an effort by nonbank
lenders like LendingClub Corp. to
ease the resale of loans.
The regulator of federally chartered banks also said it
would start accepting applications from fintech firms “effective immediately,”
opening the door for those firms to receive charters that allow them to operate
without acquiring licenses in every state.
Many of the Treasury’s roughly 80 recommendations require
additional action from regulators or Congress to bring to reality.
Others face hurdles. Any application for a fintech bank
charter is likely to face a lawsuit from state regulators, for instance.
Industry reaction to the report was broadly positive from
banks, payment companies, online lenders and others.
Brian Knight, a senior research fellow at George Mason
University who has argued current U.S. rules for fintechs are inefficient, said
the regulatory regime described in the report toed a middle ground. “It
increases competitiveness of fintechs, to the extent they are disadvantaged
under the current environment, but in other areas [it] will help banks,” he
Some recommendations, including the payday lending section,
drew criticism from consumer advocacy groups.
Aaron Klein, a former Obama Treasury official at the Brookings
Institution think tank, said that part of the report amounted to a “decision to
politicize a document that could have been broadly embraced.”
The Treasury report is the last in a four-part series
setting out the Trump administration’s financial regulatory agenda, following
reports on banks and credit unions, capital markets, and asset management and
Senior Treasury officials said that after meeting with
industry groups, regulators, advocacy groups and other experts, they concluded
the U.S. needs a simpler rulebook for financial startups.
“We must keep pace with industry changes and encourage
financial ingenuity to foster the nation’s vibrant financial-services and
technology sectors,” Treasury Secretary Steven Mnuchin said in a statement.
The report said fintech firms should be able to have a
“single process” to get permits for experimenting without violating U.S.
rules—a so-called sandbox. The process should be one that “coordinates and
expedites regulatory relief,” it said. Federal and state regulators, and
possibly Congress, would have to work together to make this happen.
Treasury also said the Office of the Comptroller of the
Currency, which oversees nationally chartered banks, should “move forward with
prudent and carefully considered applications” from fintech companies that want
a federal charter that would allow them to operate across state lines.
Hours later, Comptroller Joseph Otting said his agency
would start accepting applications “effective immediately.” He said the
charters “can make the federal banking system stronger by promoting economic
growth and opportunity, modernization and innovation, and competition.”
The OCC said applicants would have to show how they would
meet appropriate rules around the stability of their funding sources and their
ability to fail in an orderly way without disrupting the financial system.
Applications must also include “financial inclusion commitments as appropriate”
showing how they will serve borrowers of all income levels.
The Obama administration had been moving toward taking such
applications from start-up payments companies, lenders and others. But that
work has stalled while Trump-appointed officials reviewed the initiative.
The Treasury report wades into a long-running debate about
how state interest-rate caps should apply to loans that are originated by a
bank in one state but then sold across state lines. LendingClub and others have
had to modify
their business models in the wake of court rulings they say have made
loan resales more difficult, and Congress
has been considering legislation to override the court decisions.
Congress should clarify that loans are “valid when made,”
the report said, “to preserve the functioning of U.S. credit markets.” It also
said bank regulators should use existing legal authority to address the issue.
On short-term lending, the report said state regulators
have broad authority and “additional federal regulation is unnecessary.” It
recommends that the Consumer Financial Protection Bureau rescind an Obama-era
rule governing payday lending. The rule is currently under
review by the Trump-appointed head of the agency.
The report makes a series of recommendations on
financial-data policies, including that consumers should be able to revoke
access to their account and transaction data, that consumers—and so-called data
aggregators acting on their behalf—should be able to access the data on request
and that Congress should enact national standards governing data breaches.
The report also said regulators should make it easier for
big banks and fintech companies to partner. It said the Federal Reserve should
reassess its rules governing bank investments in technology firms “to provide
firms a simpler and more transparent standard to facilitate innovation-related
here for the original article from The Wall Street Journal.