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N.Y. Gov Budget Includes More Online Lending Supervision, Stokes OCC Charter Debate

cuomo_andrewNew York Governor Andrew Cuomo’s proposed budget includes verbiage giving the Department of Financial Services (NYDFS) additional oversight of online lenders, including thresholds on the amount of loans and licensing requirements, which could adversely affect loan providers in the state.

For Cuomo’s proposal to move forward, changes are necessary to the New York Banking Law to “allow the [DFS] to better regulate the business practices of online lenders,” according to the proposed budget. The budget includes legislation that would require any lender making non-business loans of less than $25,000, and business loans of less than $50,000, to be licensed by the NYDFS and authorized by regulations of the department’s superintendent. If approved, the mandate would go into effect Jan. 1, 2018. Businesses, under the proposal, would be considered participating in loans in the state even if they’re not a lender, such as companies that purchase loans or facilitate the funding of loans.

“Depending on the regulations eventually issued by the NYDFS, this change in the law could require companies currently engaging in small-balance lending to [New York] borrowers to cease their activities in New York until they obtain a license,” wrote Andrew S. Wein, attorney with Greenberg Traurig, on the firm’s blog. “Obtaining such a license could take a significant amount of time and cause a significant interruption to the entity’s business, unless the NYDFS were to authorize entities to continue business while the license application is pending.”

Turf Wars

nygov-logoThe possibility of additional oversight of online lenders in New York heightens the implications of the OCC’s plan to offer fintech companies a special-purpose charter intended to “promote the safety and soundness of fintech institutions, bring greater legal and regulatory uniformity and consistency, [and] strengthen the federal banking system,” according to Greenberg Traurig attorneys Carl A. Fornaris, Gil Rudolph and Wein. A company granted such a federal banking charter largely would be exempt from state licensing requirements, the lawyers noted.

“While the requirements of an OCC charter may prove to be unpalatable or difficult to satisfy for certain fintech companies, if the licensing regulations promulgated by the NYDFS impose similar regulatory burdens, or if other states follow suit with similar or more stringent requirements, then the comparative appeal of an OCC charter is likely to improve,” the attorneys wrote.

vullo_mariaThe OCC’s charter plan enabling fintech companies to become special purpose banks recently has come under fire from state regulators, community banks and some Democratic senators. NYDFS Superintendent Maria Vullo questioned in a Jan. 17 letter the OCC’s plan given that the agency has not identified any deficiencies at the state level that would justify those charters. The Independent Community Bankers of America sent a letter announcing it would not support the OCC plan until the OCC provides details about who would be
eligible for charters and what supervision and regulations would apply to chartered institutions and their parent companies.
brown_sherrodmerkley_jeffU.S. Sens. Sherrod Brown (D-Ohio) and Jeff Merkley (D-Ore.) also weighed in, urging the OCC not to award alternative or special purpose charters, and telling the agency it’s Congress’ duty to examine and act on matters related to fintech oversight.

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