Top Republicans from the House Financial Services Committee and the Task Force on Financial Technology sent a letter to the Office of the Comptroller of the Currency and the Acting Comptroller Michael Hsu urging the agency to clarify its position on partnerships between banks and fintech firms.
The letter, from Reps. Patrick McHenry (R-N.C.), Warren Davidson (R-Ohio), Pete Sessions (R-Texas), Tom Emmer (R-Minn.) and Bryan Steil (R-Wis.), called on Hsu and the OCC to “provide clear rules of the road and support innovative banking services, such has not been the case.”
Recently, the OCC highlighted five areas it planned to prioritize in supporting community banks. The Republicans expressed concern that “promoting fintech relationships” was not among the five priorities.
“Technological innovation fostered by fintech partnerships has enabled banks to reach segments of the population that may have been left behind and increase customer engagement,” the congressmen wrote. “Much of this innovation has been driven by industry newcomers that have developed a novel product or business model. When properly regulated, these partnerships can provide greater financial inclusion, spur technological innovation and foster competition that ultimately benefits consumers”
“Moreover, banks typically seek partnerships with fintechs for the comparative advantages they bring to the table, such as more effective branding or marketing and better technology to support underwriting or to manage a customer relationship,” they added. “It is often more cost-effective for banks to outsource to a fintech partner, as it can be expensive and challenging for banks to focus on these activities in-house.”
The congressmen criticized Democrats in Congress for nullifying the OCC’s True Lender Rule and prohibiting the OCC from enacting any substantially similar rules without statutory authorization. The True Lender Rule created a test for examiners to determine the “true lender” in bank-nonbank partnerships. Democrats were concerned that it allowed banks to subvert regulations by utilizing nonbank partners to originate loans at higher interest rates than some states allow. Republicans saw the repeal of the True Lender Rule as an infringement upon bank and non-banks to develop mutually beneficial partnerships.
As part of their letter, the congressmen are demanding information from OCC and Hsu regarding its intentions to support fintech partnerships and how it will define “acceptable terms” in these bank-fintech relationships.