NCSL Session Focuses on Regulation of Fintech

Last week, the American Financial Services Association (AFSA) attended the National Conference of State Legislatures’ (NCSL) Capitol Forum in Washington. During the Forum, the NCSL Communications, Financial Services and Interstate Commerce (CFI) Committee held a session focusing on the regulation of fintech. The session was moderated by Maryland State Senator Brian Feldman and panelists included Margaret Lieu with the Conference of State Bank Supervisors, Nat Hoopes with the Marketplace Lending Association, and Robert Morgan with the American Bankers Association.

During the session, Liu outlined state regulators’ opposition to the Office of the Comptroller of the Currency’s (OCC) proposed special purpose charter for fintech companies.

Their perspective, she argued, is that these activities are already well regulated and supervised by the states. The regulators are concerned that the OCC approach will have a distorted effect on the marketplace because it favors larger, well-established companies. Liu also brought up the handling of consumer complaints. According to Liu, with a federal charter in place, states will have to refer complaints to the OCC preventing them from helping consumers resolve them with companies, leaving consumers unsatisfied.

Hoopes emphasized how consumers are underserved by traditional lenders and stated the benefits that fintech brings to borrowers, including lower interest rates and expanded access to credit. He described how state “legacy laws,” such as rate caps, requiring a physical office in the state, and prohibitions on origination fees are a challenge for fintech companies and prevent them from providing their products to consumers. The purpose of the federal charter is not to evade consumer protections, but to make it possible to compete with banks, to the benefit of consumers. He outlined how states would maintain enforcement authority over many consumer protection laws, including Unfair, Deceptive Acts & Practices (UDAP) laws.

Morgan discussed the benefits of financial technology, including decreased costs for consumers, financial inclusion, and expansion of access to credit. He emphasized how the charter will hold these companies to the same standards of safety and soundness, access, and fair treatment, as banks.