Online lending, payments startups can apply for bank-like status
Financial technology (fintech) companies in the US can now apply for special purpose national bank status usually reserved for banks that process cheques, issue loans and/or take deposits. According to Thomas Curry, Comptroller at the Georgetown University Law Center, fintech start-ups “hold great potential to expand financial inclusion” as well as promote economic growth on a national level.
Financial technology companies can apply for a special designation usually reserved for more traditional lenders, the leader of a key federal agency that regulates banks said.

During remarks at the Georgetown University Law Center on Friday, Comptroller of the Currency Thomas Curry said that fintech startups, if they met the agency’s rigorous criteria, would be eligible to be designated as special purpose national bank.

“Fintech companies hold great potential to expand financial inclusion, empower consumers and help families and businesses take more control of their financial matters,” Curry said.

Volunteering for more regulation might seem anathema to upstarts like San Francisco’s Lending Club, Social Finance and Prosper Marketplace. Those online lenders have sought to upend traditional banking models.

But obtaining a charter has some appeal — chiefly having one primary national regulator rather than complying with a patchwork of state laws.

The charter that such companies can apply for is a designation most often applied to banks whose business model revolves around issuing credit cards, like Capital One. By definition, special purpose banks are institutions that perform at least one key banking function: processing checks, issuing loans or taking deposits.

Institutions applying for a charter have to clear a number of hurdles by demonstrating to regulators, among other factors, sound risk management, adequate consumer protections and acceptable levels of capital.

Thomas Brown, an attorney at the Paul Hastings law firm who advises financial startups, said that the charter would be particularly appealing to money-transfer companies subject to myriad local rules.

“There’s no benefit that comes from that state-by-state regulatory framework applied to digital businesses,” Brown said. “It wouldn’t shock me if a company in the payment business was the first to get this charter.”

The Office of the Comptroller of the Currency has also said that as it considers applications from fintech companies, it plans to account for unique business models and the applicability of certain laws.

In his remarks Friday, Curry said that providing a national charter to “responsible innovators” can help to promote economic growth across the country, “and recognizes that technology-based products and services are the future of banking and the economy.”

Dominic Fracassa is a San Francisco Chronicle staff writer. Email: dfracassa@sfchronicle.com Twitter: @DominicFracassa