Yesterday, Brian Brooks stepped down from his position as the Acting Comptroller at the OCC. In the eight-months he served as Acting Comptroller, Brooks has primarily focused on innovation and fintech, taking a number of actions including finalizing the “valid-when-made” rule which clarifies that lenders may transfer loans across states without running afoul of state interest caps. Bank-fintech partnerships have relied upon this rule to set up processes where nationally-chartered banks originate loans and then transfer them to fintechs that are subject to more stringent state caps. To further curtail regulatory uncertainty in these partnerships, he finalized a rule to clarify that the “true lender” is determined by the firm listed on the loan application. He also advocated for the OCC’s ability to offer special purpose charters to fintech companies, clarified that banks can provide certain cryptocurrency custody services and finalized modernization of the Community Reinvestment Act (CRA). Under his tenure, the agency granted the first national banking charter application to a mobile-only fintech, granted preliminary approval to a fintech personal finance company, approved a fintech lender’s acquisition of a national bank, and on Wednesday conditionally approved a cryptocurrency firm’s application to convert its state charter to a national trust charter.
On his last day, Brooks finalized the “fair access rule” requiring that banks with $100b or more in total assets make lending decisions based on “quantitative, impartial, risk-based standards” applied to individual applicants as opposed to avoiding or terminating services to entire categories of customers. The rule in effect restricts banks from broadly refusing service to “politically controversial but lawful” businesses that do not meet certain environmental, social or governance (ESG) standards. It has been met with vocal opposition from industry groups, which criticized the rule for “undermining safety and soundness” by constraining banks’ abilities to make judgments based on qualitative risk factors.
Upon Brooks’ resignation, OCC Chief Operating Officer Blake Paulson became the agency’s new Acting Comptroller. President Joe Biden will be able to nominate a permanent Comptroller after taking office on January 20.
When Brooks became the Acting Comptroller last May, he recognized that his tenure could be short but pledged to “make a difference” and “move fast” to take actions to advance an ambitious innovation agenda. He made good on that promise, but it remains to be seen whether the ambitious steps taken under his tenure will last. With the special purchase charter, valid-when-made rule and true lender rule all facing lawsuits from state regulators alleging that these actions unconstitutionally override state consumer protection authority, the potential for courts to declare them invalid remains. Any upcoming legal decisions may be moot, however, as President Biden’s new Comptroller could take steps to modify or reverse not only these actions but also the CRA reform and fair access rule, both of which faced disapproval from Democrats. Considering that consumer protection and promotion of ESG are likely to be key aspects of Biden’s financial services agenda, we see these two rules in particular as potential priorities for a new Comptroller to rescind or modify. Specifically, we could see the Biden OCC aligning the CRA rule to the proposal released by the Fed, which was led by Obama-appointee Lael Brainard and received praise from community groups As for Brooks’ efforts to promote innovation, we do not expect the Biden Administration to pursue a full-scale reversal of them but instead focus on ensuring that they have the appropriate frameworks to ensure consumer protection.
Last Tuesday, the CFPB released a report from its Taskforce on Federal Consumer Financial Law providing an overview of the current legal and regulatory environment and offering 102 recommendations for improving it. The recommendations span a wide variety of categories including:
By releasing this nearly-900 page report, the Taskforce is providing the incoming Administration with a lot of early reading material. The headlines are focused on the more controversial aspects of the report along with the make-up of the Taskforce itself, which was sued last year by consumer groups for lacking consumer advocate representation. Most of these more headline-grabbing recommendations do not have much of a chance of becoming reality any time soon. For example, Congress is unlikely to grant the CFPB new chartering authority for nonbanks and states are unlikely to eliminate their interest caps. However, beneath the headlines, the report contains a number of proposals designed to be common-sense approaches to increase efficiency, transparency and consumer protection that could be adopted by the incoming Administration. For example, the recommendation to pursue data privacy regulation could receive bipartisan support, but Democrats in Congress would likely oppose any national law that weakens state standards. In terms of recommendations that the CFPB can implement itself, we expect the new Director to focus on recommendations that would benefit and protect consumers such as more financial literacy programs and stronger data privacy protections.
These notable developments hit our radar over the past week:
Financial Services Leader, PwC US