Mobile banking startup Varo Money Inc. announced this week it has applied for a national bank charter.
Although Varo is technically a financial technology company, its application is not for the special charter for nonbanks, or fintechs, that has been proposed by the Office of the Comptroller of the Currency. Varo instead opted to apply for the traditional national bank charter through the OCC and the Federal Deposit Insurance Corp. a step some attorneys view as a direct result of the OCC acting comptroller's July 19 speech to the Exchequer Club in Washington, D.C., that encouraged fintechs to act as banks.
In a press release issued Tuesday, the San Francisco-based company said it "seeks to be the first national bank in American history designed for people who want to bank on their smartphones," adding that, "as a national bank, Varo will be able to help Americans nationwide."
A Varo spokeswoman declined to provide a copy of the application, and it is not yet available through the OCC. An OCC spokesperson confirmed receipt of the application but did not comment further.
In his speech last week, Acting Comptroller of the Currency Keith Noreika defended the right of fintech companies to operate as banks. And he argued companies "acting like banks" ought to be regulated like banks.
"Hundreds of fintechs presently compete against banks without the rigorous oversight and requirements facing national banks and federal savings associations," Noreika said in his speech.
He drove home the point that, despite lawsuits arguing otherwise, the OCC is authorized to grant special purpose charters to nonbanks. However, he noted that the OCC already has authority to grant bank charters to any company that accepts deposits.
Jarrett Hale, partner at Hunton & Williams, views this as a blatant invitation for fintech companies to apply for a charter, as Varo has done.
"Keith Noreika made clear that this is coming whether anyone likes it or not," Hale said. "[Noreika] basically said, 'We have this special purpose charter, but [you] may not even need a special purpose charter. [The OCC] already has authority over banking.'"
Hale found the speech to be "a shot across the bow to litigants," referring to the lawsuits brought by the Conference of State Bank Supervisors and the New York Department of Financial Services that claim the OCC is overstepping its authority by introducing a special purpose charter for nonbanks.
Vincent Basulto, partner at Richards Kibbe & Orbe, similarly views Noreika's speech as proof the agency is "prepared for a showdown with state regulators over challenges to the OCC's authority."