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Develop Fintech Charter & Repeal Payday Lending Rule: Treasury

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Seal of the Office of the Comptroller of the Currency.

The Office of the Comptroller of the Currency should forge ahead with plans to develop a special charter for fintech companies, the Treasury Department said Tuesday.

In a new fintech report, Treasury also recommended that the Consumer Financial Protection Bureau repeal its controversial payday lending rule and that policymakers develop a national data breach standard.

“The OCC’s special purpose national bank charter, proposed in 2016, presents an attractive option for firms interested in the benefits of having a single primary federal regulator,” the department said, in a new report that makes recommendations on the regulation of fintech companies. “This type of banking charter may provide a more efficient, and at least a more standardized, regulatory regime, than the current state-based regime in which they operate.”

Last year, acting Comptroller of the Currency Keith Norieka recommended that the agency issue such charters. However, Comptroller Joseph Otting, who was later confirmed by the Senate, has said he is still studying the issue.

Treasury said that OCC special purpose banks should not be permitted to accept FDIC-insured deposits in an effort to reduce risks to taxpayers.

Groups representing established financial institutions have said that if fintech charters are issued, the companies should be subject to the same regulatory requirements as traditional institutions.

The Treasury Department has been issuing a series of reports evaluating the regulatory framework governing financial institutions in accordance with an Executive Order issued by President Trump.

The department already has released its recommendations governing banks and credit unions.

In the report, Treasury said that marketplace lenders are not subject to the same federal regulatory framework that other lenders face.

“These limitations may impede the ability of banks and credit unions to partner with nonbank financial institutions, develop new platforms within the organization, or offer new and innovative services to customers,” Treasury said.

Treasury recommended that federal and state regulators establish a unified regulatory framework that encourages innovation—an effort that would establish a “regulatory sandbox.”

Treasury recommended that the CFPB rescind its strict payday lending rule, which was issued by former Director Richard Cordray. Acting CFPB Director Mick Mulvaney has said he is revisiting the need for the rule.

In its report, Treasury said payday lending already is regulated on the state level.

The department also recommended that federal and state banking regulators take steps to encourage short-term lending by banks.

The NCUA has established its Payday Alternative Loan program to allow credit unions to offer short-term loans and is now examining whether to expand the program.

Treasury also expressed concern that the U.S. does not have a national law establishing uniform standards for notifying people about data breaches. Instead, states have been developing their own data breach laws.

Treasury recommended that Congress enact legislation that would include uniform national standards that preempt state laws, while also recognizing the existing federal data security requirements for financial institutions.