A speech by interim OCC head Keith Noreika in September suggested that Joseph Otting, Noreika's replacement will likely embark on a path of deregulation for the banking industry.
While he didn't explicitly deal with Otting’s views on fintech, Noreika did say that Otting “can’t ignore the changing nature of technology in the banking industry” — and online lenders will be watching keenly for further hints on Otting's views.
Otting replaces Noreika, who took over as interim head when former Comptroller Thomas Curry left in May. Curry’s legacy has been pro-fintech, and under his leadership the OCC launched an office of innovation last November dedicated to studying developments in financial technology.
Curry also proposed the creation of a landmark special purpose charter last December, which will allow fintech companies, including marketplace lenders, to operate as national banks, though the charter has not yet been approved.
The charter would allow online lenders to sidestep some of the legal mess created by the Madden versus Midland case, which caps interest rates on loans originated in certain states. The dilemma created by the case has hampered loan liquidity for some online lenders, and many have opted to pull affected loans from securitizations over the last 18 months.
With a charter, online lenders will not need to depend on a lender-bank partnership – often with a community bank – to bypass state interest rate caps for loan originations.
Community banks and online lenders often compete for the same customers, and given Otting’s background as a community bank veteran, it is unclear which side he will be friendlier to.
Some community bank lobbyists opposed the charter, questioning whether online lenders can cope with the same level of regulatory scrutiny as community banks, and whether lenders should be allowed access to payments systems like the National Automated Clearing House Association.
As it stands, the charter probably won't affect partnerships between smaller online lenders and community banks, which continue to depend on each other for borrowers and underwriting technology.
But the larger online lenders with sizeable balance sheets could become worthy competitors with the help of the charter, and some ABS investors have indicated that a charter could further legitimize lenders' brands in the securitization market.
Noreika has a point – Otting certainly will not ignore fintech and online lending. But what kind of approach he'll take is still a mystery. Will plans for the charter take off or end up shelved under his leadership?