The Office of the Comptroller of the Currency (OCC), an independent bureau within the US Treasury Department that serves to charter, regulate, and supervise all national banks and several other types of institutions, had introduced a specialized bank charter in 2018 that would not have required deposit-taking.
However, the Fintech-focused charter faced various legal challenges and hasn’t been accepted or approved. But San Francisco-based Fintech firm Figure Technologies is now trying to look for a workaround that would allow it to take advantage of some of the benefits of being a banking institution. The Fintech company might also not have to cover certain costs that usually come with these types of arrangements.
If this approach is successful, then Figure Technologies would be able to preempt certain State interest-rate laws and requirements, while also being able to avoid oversight by the Federal Deposit Insurance Corporation and the Federal Reserve Board. As reported by the American Banker, the Fintech company might also be able to avoid dealing with the requirements outlined in the Community Reinvestment Act.
Mike Cagney, CEO at Figure Technologies, has noted that under a State regulatory framework, his firm would have to acquire over 200 different operational licenses in 2021. A national bank charter would be able to consolidate supervision and oversight with the OCC.
Industry analysts have reportedly stated that if Figure manages to obtain approval from the OCC, and its overall approach can deal with associated legal issues, then the company’s blueprint might get used by other tech firms. This possibility is now a matter of concern for banking sector participants because it could lead to greater competition from tech giants such as Amazon and Google.
Christopher Cole, EVP and senior regulatory counsel at the Independent Community Bankers of America, has said that he believes it could be “precedent-setting” if this approach gets approved, and might offer a roadmap for larger tech firms to acquire charters from the OCC.
As reported in early November 2020, Figure Technologies had applied for a US national bank charter and has also announced a new CEO for Figure Bank. However, the company’s application also aims to emulate the value proposition provided by the Fintech-related charter that the OCC had proposed in 2018. The main idea behind Figure’s suggested approach is that it won’t be accepting FDIC-insured deposits, however, the company could begin taking uninsured deposits of more than $250,000.
The goal would be to work around a set of laws and regulations that require banking institutions to accept deposits, but not always insured ones. These uninsured deposits may come from accredited or professional investors and would be somewhat similar to loans that come with high interest rates.
Since Figure Bank wouldn’t have insured deposits on its balance sheet, it might not come under the FDIC’s regulatory oversight. Not holding insured deposits could also prevent oversight by the Fed that would normally be required by the Bank Holding Company Act.
Michelle Alt, a banking consultant who has worked on the Figure Bank application, said that this particular model might not be suitable for all companies or businesses. She explained that many would-be banks want to be banks so that they can have more dependable sources of funding. She added that if this application is successful, then many more firms might become interested in pursuing a similar process.
Established in 2018, Figure Technologies provides home equity lines of credit and mortgage refinance loans. The company stated that it has effectively used modern technologies to lower the overall cost and the amount of time required to originate home equity lines. Figure’s management confirmed that the firm intends to add deposit accounts and point-of-sale credit via an easy-to-use mobile app.