How One Obscure Regulator Is Unleashing a Predatory Lending Hellscape

Posted by Raúl Carrillo

Thomas J. Curry has only one week left as Comptroller of the Currency. But America’s chief regulator of national banks isn’t acting like it. Despite intense opposition from community advocates and conservatives alike, Curry, an Obama appointee, is doubling down on an ill-advised plan that would allow online lenders and other so-called fintech firms to rip people off.

Imagine an America where you can’t use the internet without being targeted for customized predatory loans. Where Silicon Valley firms siphon your data, then they siphon your dollars — all with government go-ahead. It’s The Matrix…for usury. Is this the legacy Comptroller Curry wants to leave?

Curry’s term expires on April 9th, after which Trump will appoint a successor. The current heir apparent to run the Office of the Comptroller of the Currency (OCC) is Joseph Otting, a former OneWest CEO and Mnuchin henchman, who will undoubtedly make Curry’s plan even worse.

What the heck is fintech?

Fintech firms — short for financial technology firms — come in many shiny shapes and sizes. Some simply offer payment services. Others merely manage wealth. Yet others dig into personal data to make loans. Silicon Valley acolytes claim these online lenders to be magic catalysts for “financial inclusion.” But the more hard-headed among us know the combination of Big Banking and Big Data (not to mention artificial intelligence) will likely bring even more fraud, deception, and exploitation. Indeed, regulators have already taken action against the infant industry for deceiving consumers.

OK, what’s a fintech charter?

Charters provide corporations with both rights and responsibilities. Thus, corporations, including banks, tend to shop for the most advantageous charter possible. Big banks can choose between a “national charter” and the charters of particular states. This allows them to opt into national standards but avoid state standards, which are typically more protective of consumers.

In March 2016, just over a year ago, Curry floated the idea for “special purpose” national bank charters for fintech firms that serve some banking functions. And he did so with little public input. Then, in December 2016, despite public outcry, Curry announced his intention to push ahead.

In January 2017, New Economy Project joined Americans for Financial Reform and more than 270 other community, labor, civil rights, faith-based, and veterans groups in calling on Curry to pull the plug on the fintech charter proposal. Curry did not heed our call to back off.

What’s really wrong with fintech charters?

Here are just a few reasons we should all oppose national fintech charters:

  • Payday lenders and other predatory companies will use the charters to run around state usury caps, and other hard-won protections. They won’t even have to partner with banks to do so, as they have in the past. They’ll just have to move their business online.
  • As even industry commentators have noted, fintech charters would also allow online lenders to avoid court-established protections. For example, chartered fintech lenders would be able to sidestep a recent ruling by the Second Circuit Court of Appeals stating that lenders can’t simply partner with national banks in order to charge interests rate above state limits. With national fintech charters, this ruling becomes moot for online lenders: they would be able to charge whatever they rate wanted, bank partner or no bank partner.
  • The charters raise major civil rights concerns. It’s unclear, for example, what concrete steps the future OCC will take, if any, to prevent digital redlining. The Community Reinvestment Act does not apply to fintech firms that don’t accept deposits. Although Curry has asked lenders to include a “Financial Inclusion Proposal” (FIP) in their charter applications, we have no reason to think Otting — or any other successor — will actually require fintech firms to promote financial inclusion (whatever that means).
  • It’s unclear the OCC even has legal authority to grant these charters. Other regulators, including the New York Financial Services Superintendent, Maria T. Vullo, argue the OCC lacks the expertise to regulate non-depository institutions.
  • The charter process will not be used for good. Even if Curry boots up the program, his successor will modify it. So, we have to ask…why is Curry so dead-set on pushing his process through in the first place?

The public costs heavily outweigh any benefits.

Industry likes to argue that fintech charters will pave the way for consistent national regulation of “innovation”, especially with respect to corporate governance and risk management. But the price for uniformity is too high. The charters are optional rather than mandatory, and thus the major reason fintech companies would choose the charter is to shuck tough state regulations.

You’d think Curry and the rest of the OCC leadership would notice that Trump is in the White House. Despite Curry’s assurances that “consumer protection has changed significantly since the financial crisis,” many of those positive changes are now in the GOP’s crosshairs. The Consumer Financial Protection Bureau (CFPB) is under constant attack — in a future defined by predatory online lending, the CFPB might not be there to crack down on fintech fraud. Dodd-Frank itself is in peril.

The very fact that Curry himself will soon exit the stage seems lost on him. Will Otting respect Curry’s promise to “not approve charter proposals from any company that plans to offer financial products and services with predatory or abusive features”? Or is he more likely to let corporations like Walmart in on the action? Many Republicans already think the charter is too harsh on industry. Some have even proposed legislation that would allow fintech firms to directly petition regulators for waivers on existing rules.

Although “fintech charters” might seem remote and hyper-technical, they are likely to usher in a consumer finance dystopia. Imagine a world where we are all bombarded with ads for 400% APR loans every time we log into cyberspace.

Curry should pull the plug, but the word in Washington is he won’t. So, it looks like we’re hurtling toward a new financial services nightmare. Please take a moment to educate yourself, share the community group letter, and share this blog post. This is going to change our world and we have a long fight ahead.