"It is far from clear whether the OCC has authority to grant national bank charters to them," wrote Sens. Sherrod Brown, D-Ohio (pictured), and Jeff Merkley, D-Ore.
"It is far from clear whether the OCC has authority to grant national bank charters to them," wrote Sens. Sherrod Brown, D-Ohio (pictured), and Jeff Merkley, D-Ore. Image: Bloomberg News

The Office of the Comptroller of the Currency's plan to offer a federal charter for fintech companies is facing a challenge from two top Senate Democrats.

In a letter Monday to Comptroller Thomas Curry, Sens. Sherrod Brown, D-Ohio, and Jeff Merkley, D-Ore., opposed the creation of the charter, which would allow certain types of fintech companies to avoid state licensing requirements by obtaining a limited-purpose bank charter.

The OCC's plan "could also allow predatory alternative financial services providers to spread more quickly given the blessing of the federal government and elimination of state-based protections for working class Americans," wrote Merkley and Brown, the top Democrat on the Banking, Housing, and Urban Affairs Committee. "Offering a new charter to nonbank companies seems at odds with the goals of financial stability, financial inclusion, consumer protection, and separation of banking and commerce that the OCC has upheld under your tenure."

In the letter, the senators cast doubt on the OCC's authority to grant the charter to nondepository institutions, which appear to be the primary candidates for the charter.

"It is far from clear whether the OCC has authority to grant national bank charters to them," the letter states. "Congress has given the OCC a very narrowly defined authority to charter only three specific types of special-purpose national banks...that do not accept deposits."

Those comprise bankers' banks, credit card banks and trust banks, the senators wrote. The lawmakers warned that the charter could encourage companies to sidestep certain consumer protection laws by obtaining the preemption privileges of a national charter, a tactic they called "charter shopping."

"This charter allows nonbank firms to negotiate which provisions of a national banking charter they want, including preemption of state consumer protection laws, while avoiding the rules and regulations that would apply to a full-service bank," they wrote.

The lawmakers also doubted the OCC's plans on a deeper level, asserting that companies with single lines of businesses should not be able to obtain the status of a bank.

"An alternatively chartered firm that does not take deposits by offering transaction or savings accounts, and therefore does not encourage the fundamental banking act of building wealth by encouraging savings, should not be able to refer to itself as a 'bank,'" they wrote. "Retail customers have an idea what this term connotes base on decades of experience — safety, stability and a spectrum of services regulated, and in some cases insured, by the federal government."

The OCC last month announced that it would begin accepting applications from fintech companies seeking to obtain a federal bank charter. Companies eligible for the charter must participate in either one of the three core banking functions: lending money, paying checks or receiving deposits.