New York vs OCC: Let’s Think of the Children | Bank Innovation

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The Empire State really wants to be in charge of the fintech sandbox—and it wants the OCC out already.

In his recent 2017 budget proposal, Governor Andrew Cuomo outlined a few changes that might be in store for New York State fintechs, particularly online lenders.

These changes include expanding the licensing regulations for lenders that issue personal loans of $25,000 or less, and commercial loans of $50,000 or less. The modifications could also widen the regulatory scope that the New York State Department of Financial Services (DFS) would have jurisdiction over.

The news comes one month after the DFS told the OCC to lay off—using nice, formal legalese—regarding the proposed fintech charters.

“It is so significant now, where the OCC will grant charters, because if they do grant [these marketplace lenders] charters, they will be exempt from state licensing,” says Scott Wortman, partner at Warshaw Burstein, LLP. “When you’re chartered under the OCC, like a bank, that’s who you report to.”

Sadly, the kids are the ones caught in the middle—under Cuomo’s proposed changes, which can be viewed here, every company involved in the loan-making process (whether or not they are issuing the loan) has to be covered under a license, making them subject to the watchful eye of the State Department.

According to Wortman, if the proposal is passed, marketplace lenders will see increasing compliance costs and may have to shut down operations in New York.

“Having to deal with hundreds of regulators makes it difficult for the startups, for these entrepreneurs–people who have these brilliant ideas for lending–to get their feet in the door,” says Wortman.

For now, Cuomo’s proposal is just that–a proposal, which has already earned a lot of scrutiny. Among its critics are Eric Schneiderman, Attorney General of the State of New York, who stated in a letter to the legislative branch:

These provisions are a wholly unnecessary overreach by the Executive and should be rejected by the Legislature. The proposals, which were drafted without any consultation with my office, would alter the enforcement arrangement the Legislature established when creating DFS, resulting in unnecessary and harmful overlapping state enforcement authority, which could jeopardize ongoing and future investigations. They would also require additional, duplicative funding for DFS. For these reasons, the proposals should not become law.

But fintechs should be aware: the OCC isn’t a fix-all: it won’t grant a charter to everyone that comes calling.

To learn more about online lending and financial regulation, join us in San Jose on March 6-7 for Bank Innovation 2017, where the best conversations in fintech take place. Request your invitation here.

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