Virtual Hearing - Banking Innovation or Regulatory Evasion? Exploring Trends in... (EventID=111447)

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Connect with the House Financial Services Committee Get the latest news: https://financialservices.house.gov/ Follow us on Facebook: https://www.facebook.com/HouseFinancialCmte Follow us on Twitter: https://twitter.com/FSCDems ___________________________________ On Thursday, April 15, 2021, at 10:00 a.m. (ET) Consumer Protection and Financial Institutions Subcommittee Chairman Perlmutter and Ranking Member Luetkemeyer will host a virtual hearing entitled, “Banking Innovation or Regulatory Evasion? Exploring Trends in Financial Institution Charters." - - - - - - - - Witnesses for this one-panel hearing will be: • Raúl Carrillo, Deputy Director, LPE Project and Associate Research Scholar at Yale Law School • Erik Gerding, Professor of Law, University of Colorado Law School • Kristin Johnson, Asa Griggs Candler Professor of Law, Emory University School of Law • Carlos Pacheco, CEO, Premier Members Credit Union on behalf of National Association of Federally-Insured Credit Unions (NAFCU) • Brian Brooks, Former Acting Comptroller of the Currency Overview Technology and related innovations are rapidly affecting the financial system, raising the potential to expand access to credit and other banking services while raising concerns regarding the adequacy of the current legal and regulatory framework governing these activities and market participants. Traditionally, financial firms seeking to engage in the business of banking must apply for a bank or credit union charter from either state or federal banking regulators, in addition to applying for deposit or share insurance from the Federal Deposit Insurance Corporation (FDIC) or National Credit Union Administration (NCUA). Once chartered and insured, financial institutions are subject to supervision and regulation, including consumer protection and prudential regulation promoting safety and soundness. In recent years, the Office of the Comptroller of the Currency (OCC) and the FDIC have taken steps to allow firms to engage in banking activities while being subject to less regulations and supervision compared to most other banks and credit unions. Additionally, some states have ventured into unconventional bank charters aimed at allowing cryptocurrency, blockchain, or other financial technology companies (fintech) to provide bank-like services. At a time when risks to the financial system “remain elevated” during the COVID-19 pandemic, ensuring there are adequate safeguards to promote financial stability, safety and soundness, consumer protection, and market fairness are important policy considerations with respect to banking charters and any related reforms to the legal and regulatory framework. Background Oversight and supervision of financial institutions is shared across various regulators and generally is determined by whether the institution is chartered federally or by a state. The National Currency Act of 1863 and National Bank Act of 1864 created the OCC and established a system of national banks with a goal, among other things, of standardizing a national currency. While banks may still be chartered by state governments, the OCC has the sole ability to charter national banks. Additionally, national banks are required to join the Federal Reserve System (FRS). The Board of Governors of the FRS (Fed) is the prudential regulator of state banks that are members of the FRS, and also the supervisor of bank holding companies, while the FDIC regulates state banks that are not members of the FRS. NCUA is the federal regulator for credit unions. Banks are subject to the Community Reinvestment Act and are able to export interest rates they charge that are allowable under their home state to borrowers in other states, even if those other jurisdictions have stricter usury laws.10 Moreover, the FDIC provides deposit insurance to insured commercial banks, and the NCUA provides deposit insurance to most credit unions through the 2National Credit Union Share Insurance Fund. However, approximately two percent of credit unions are privately insured through a single company, American Share Insurance. For depository institutions with more than $10 billion in assets, the Consumer Financial Protection Bureau (CFPB) is the primary supervisor for consumer protection, and for such institutions with less than $10 billion, the bank’s prudential regulator also supervises consumer compliance. Furthermore, the CFPB has authority to supervise non-bank financial institutions though its authority over these institutions varies based on their activities and size. Industrial Loan Companies Industrial loan companies (ILCs) are state-chartered institutions similar to traditional commercial banks; they can originate loans, process payments, and take deposits insured by the FDIC. While they are not allowed to offer checking accounts, ILCs often offer “negotiable order of withdraw” (NOW).... Hearing page: https://financialservices.house.gov/calendar/eventsingle.aspx?EventID=407533