Patrick McHenry is working with a Senate Democrat on a bill for fintech beta testing; he introduced the Financial Innovation Act in the House of Representatives in 2016 which did not advance; the Financial Innovation Act included the creation of innovation offices with 12 regulatory agencies; he says the 2017 version of the act will include "significant changes and revisions"; he plans to introduce the new bill in two months. Source
The Conference of State Bank Supervisors (CSBS) is suing the OCC to challenge its plans for a fintech charter; central to the case is the OCC's authority to grant special purpose bank charters; CSBS President and CEO John Ryan says, "The OCC's proposed action ignores Congress, seeks to preempt state consumer protection laws, harms markets and innovation, and puts taxpayers at risk of inevitable fintech failures." Source
American Banker reports on the increasing number of financial services companies and groups using the federal court system to oppose regulatory enforcement orders and new initiatives; the Conference of State Bank Supervisors is the most recent case as the group seeks to debate the OCC's fintech charter; the CFPB has also been a notable defendant with opposition from Ocwen Financial and PHH Corp.; other cases have included MetLife and the American Bankers Association; according to H. Rodgin Cohen, chairman of Sullivan & Cromwell, "There's an increased willingness to litigate," and it seems the trend is likely to continue with industry changes resulting in new challenges and consequences. Source
SoFi has announced a new fund following a theme discussed at LendIt USA 2017; SoFi's new fund, the SoFi Prime Income Fund, will target family offices; it has raised $105 million from 33 investors each contributing a minimum of $500,000 and will include SoFi's unsecured student and personal loans; it adds to a Credit Opportunities Fund introduced last year; at LendIt USA 2017 panelists discussed new fund creation by platforms; the industry has begun to favor platform fund development over retail fund development; the complexity of marketplace loans and specifically their liquidity risks have kept them from widespread expansion in the retail fund management industry; challenges such as managing international currencies and using alternative leverage strategies are just a few of the retail fund risks for investment managers. Source
FinTex Chicago is launching Currency on June 1; Currency is a new initiative from the nonprofit group that will provide a new resource for startups; Currency will be located at WeWork on 20 W. Kinzie Street and will potentially rent some of its 32-desk space; Currency is expected to be a gathering place for fintech startups, academics, regulators and established firms in Chicago, according to Jason Henrichs, co-founder of FinTex Chicago; Currency and its partners also plan to share online resources and offer programming on the fintech regulatory environment. Source
Opposition to the OCC's fintech charter continues with a new lawsuit filed by the Conference of State Bank Supervisors which says the OCC does not have the legal authority to issue the fintech charter that it has proposed; the lawsuit says the OCC will need "specific congressional approval" for the charter and that nondepository companies are not considered to be engaged in the business of banking; preemption of state consumer protection laws has evoked strong opposition to the OCC's fintech charter and the lawsuit by the Conference of State Bank Supervisors is the first court action taken by an opposing party; the OCC's financial inclusion provisions, lack of clarity on state mandated requirements such as interest rate caps, default rate limitations and underwriting standards, and lack of detail on business factors including capital requirements and other balance sheet measures have caused decreasing support for the charter overall. Source
Robinhood has announced details of its latest funding round which raised $110 million for the firm giving it fintech unicorn status with a valuation of $1.3 billion; investors in the Series C funding round included DST Global, NEA, Index Ventures, Ribbit Capital, Thrive Capital and Greenoaks Capital; the firm also announced that it now has over two million users; the firm says: "Our two million users have transacted over $50 billion and saved nearly half a billion dollars in commission fees. Robinhood Gold, our margin and extended hours service, is also experiencing significant growth, with signups surging 17% month over month."; the firm plans to use funds from the Series C funding round for expansion of the platform's products and services. Source
Project Catalyst is a CFPB initiative designed to allow the Bureau to collaborate with startups, nonprofits and banks on new financial innovations; Patrick McHenry writes about the initiative's failed attempt for innovation through its no-action letter provision and instead says the Bureau should favor using sandbox programs; in Patrick McHenry's opinion editorial he argues for a better innovation testing environment, stating, "Congress needs to provide our federal regulators the ability to create a permanent beta testing environment that allows the agencies to test whether financial products are what they claim to be, while allowing a startup's compliance officer - who is usually the company's founder - peace of mind." Source
Recent comment letters in response to the OCC's fintech charter show increased criticism for the agency's proposal; consumer protection groups, community banks and state regulators have all voiced opposition while supporters have been disappointed by the process for the charter; supporters are concerned that financial inclusion plans and other provisions for the charter might be overly burdensome; consumer protection provisions are also a point of emphasis with groups suggesting specific consumer protection measures such as interest rate caps, default rate limitations and underwriting standards; lack of details on a number of business factors including capital requirements and balance sheet versus off balance sheet funding have also reduced confidence in the charter. Source
States have voiced their opposition against the OCC's fintech charter proposal and could be a factor limiting the charter from proceeding; with the charter, fintechs can be granted special purpose national bank status which includes national governance with exemption from state laws; many states have actively integrated regulations and processes for alternative lenders, including state usury laws and regulations for payday lenders; opposing states say the charter would complicate existing state level laws and initiatives. Source