The Office of the Comptroller of Currency is being sued by state regulatory agencies for its efforts to provide special charters to non-bank alternative lenders. The future of non-bank commercial lending remains uncertain. As competing regulatory interests squabble, consumers are still left without basic protections.

States regulators, under the banner of the Conference of State Bank Supervisors, are suing the Office of the Comptroller of Currency (OCC) over the agencies proposal to issue special bank charters to non-bank alternative lenders. Opponents of the OCC’s efforts claim that under the National Banking Act, the OCC can only charter traditional depository institutions. John Ryan head of the CSBS claims, “ If the OCC is allowed to proceed with the creation of a special purpose nonbank charter, it will set a dangerous precedent that any federal agency can act beyond the legal limits of its authority.” Applicants for the OCC charter would need to meet the similar standards as traditional banks in terms of capital, liquidity, governance and regulatory compliance. The charter would label alternative lenders who qualify as special purpose banks, putting them under the same regulatory purview as traditional banks. States see the OCC’s proposal as a direct threat to their authority to regulate alternative lenders.

The issue comes down to the apparent need for a uniform regulatory frame-work for non-bank lenders. The OCC claims offering the charter is just the first step in efforts to encourage responsible innovation and to protect consumers in the growing alternative lending industry. The special charter would be optional and a way for alternative lenders to distinguish themselves from the competition. Securing a charter could allow qualified lenders to skip the state-by-state licensing process currently in place. State regulators argue that existing frame-work has worked thus far and that states are in a better position to regulate the growing industry. According to Ryan, “State regulators already supervise a vibrant financial services marketplace that includes non-banks and banks. That regulatory structure has produced a robust platform for innovation.”

This debate illustrates just how far behind US regulators

are when it comes to the Fin-Tech industry.

The OCC’s proposal is merely first step to provide a uniform set of regulations for the alternative lending industry. Similar frameworks already exist in places like Hong Kong and the UK. These countries were able to take preemptive steps to protect consumers. In the US creating a consistent set of regulations is far more difficult because there are so many overlapping interests. But the lawsuit and the debate over state vs federal authority, should be settled in order to protect consumers and the industry as a whole. Going forward a uniform, but adaptive regulatory frame work is needed. The OCC should lauded for taking tentative steps in this direction.

While regulators squabble over who can regulate alternative lenders, consumers lack basic protections.

Basic consumer protections are needed in the Fin-Tech industry. State and federal regulators should stop sparring with one another and take concrete steps to establish a sensible set of rules under which alternative lenders can operate. The OCC efforts to give consistency through a standardized charter is an encouraging first step in this direction. Good regulation in the future would recognize the diversity within the industry as a whole, adapt as the market changes and not place an overwhelming burden on start-up lenders. The federal government and states need to work with one another, to protect consumers rather than engaging in pointless turf-wars.