The federal government began clearing a path on Tuesday for online lenders and payment companies to more easily and directly compete with traditional banks, a change that one regulator said would allow innovative businesses to expand nationwide.
Online lenders and other so-called fintech firms — including the payment processor Square, the online lender Lending Club and the cryptocurrency exchange Coinbase — have pressed for regulatory routes that would let them cut through the thicket of state and federal laws that govern financial businesses.
Heeding those requests, the Treasury Department released a 222-page report laying out the Trump administration’s view on how nonbank financial companies should be regulated. Hours later, the Office of the Comptroller of the Currency, a national bank regulator, announced a new kind of charter that would potentially free such companies from the state-by-state approvals they currently need to offer loans and other financial products.
The agency had been considering the idea of a national charter for more than two years. Joseph M. Otting, the comptroller of the currency, said his office would immediately begin accepting applications.
“Companies that provide banking services in innovative ways deserve the opportunity to pursue that business on a national scale,” Mr. Otting said.
But legal challenges are almost certain. The Conference of State Bank Supervisors sued the Office of the Comptroller of the Currency last year to block such an action, but its case was dismissed because a charter had not yet been created. On Tuesday, it said the agency had exceeded its authority.
John W. Ryan, the president of the conference, called the charter “a regulatory train wreck in the making.”
Decisions on charters would place the federal government in the business of picking “winners and losers in the marketplace,” he said. “And taxpayers would be exposed to a new risk: failed fintechs.”
The new charter is available only to companies that do not take and hold deposits, and it comes with a thick set of rules. Applicants will be required to prove that they have the capital and liquidity needed to carry out their plans and adequate security technology and internal controls to protect their customers and comply with financial laws.
The Treasury’s report also endorsed the idea of “sandboxes” — live tests that allow companies to experiment, under a regulator’s supervision, with new products and business models.
Industry representatives praised the changes. “The O.C.C. has recognized that there’s a new era, and they’re updating their supervision and chartering framework to adapt to it,” said Nat Hoopes, the executive director of the Marketplace Lending Association, whose members include Lending Point and Social Finance.
Christin Spradley, head of external affairs for OnDeck, an online small business lender, said, “Things are coming up aces today.”
Tuesday’s announcements “can provide us with much greater regulatory certainty, which would be a watershed for the industry,” she said.
Criticism of the new charter ranged from calling it unnecessary to calling it dangerous.
Maria T. Vullo, the superintendent of New York’s Department of Financial Services, said the new charter was an illegal move to undermine state supervision.
“A national fintech charter will impose an entirely unjustified federal regulatory scheme on an already fully functional and deeply rooted state regulatory landscape,” she said.
More than 250 consumer groups sent a letter last year to the Office of the Comptroller of the Currency opposing the idea of a fintech charter, which they fear would allow companies to evade state interest rate caps and other consumer protections.
“Giving national bank charters to nonbank lenders could open the floodgates to a wide range of predatory actors,” said Lauren Saunders, associate director of the National Consumer Law Center.
Change will come slowly, said Isaac Boltansky, the director of policy research at Compass Point Research & Trading, an investment firm.
“There’s undoubtedly going to be a number of companies that climb down the rabbit hole and test out this new charter, but I don’t think we’re going to see a sudden sea change,” he said. “There’s still substantive questions about the requirements, and for some companies it might be easier to just go another route.”
Square, for example, applied last year for an “industrial loan company” charter from the Federal Deposit Insurance Corporation, which would allow it to hold government-insured deposits. The company recently withdrew its application in what it called a “procedural step,” but said it planned to refile.
A company spokeswoman declined to comment on the new charter.
