2020...Not a Year of Perfection

2020...Not a Year of PERFECT VISION

Ron Quinn

President & CEO Peach State Bank & Trust, Gainesville 2019-2020 CBA Chairman

As I reflect to September of last year, at the CBA Annual Convention, my message was that 2020 would be a year of PERFECT VISION for our industry and our economy. Now, there has never been in my 40- year banking career a time of more UNCERTAINTY, as we approach the fourth quarter of 2020 and the beginning of 2021.

The year started with all banks in Georgia enjoying a Net Interest Margin well above 4.0 percent, something that most of us have not seen since the 1980’s. An economy that was booming, low unemployment rates nationwide and even lower in Georgia, and the stock market at all time highs with what economists predicted was less than a 20% chance of a national recession in 2020, and if there were one, Georgia would fair much better that the rest of the nation. Life was good.

The regulators had been asking bankers over the last twenty years to have a strong pandemic plan prepared and tested to make sure banks and bankers were ready should a pandemic ever hit. We all felt that this was not the best use of our time, but foresight by the regulators had us all prepared, as we complied with their request. I personally would like to send a big “THANK YOU” to all our Banking Supervisory Agencies that had us all so prepared as COVID-19 began to appear in the United States.

Community banks around Georgia, rolled out their plans and did what it took and continue to do what it takes to keep the banking side of the economy going. Bankers took the necessary steps to make their Banks safe for the staff and customers and keep commerce going. As our small businesses and agri business clients began to feel the effect of the virus, community banks stepped up again to fund over 60% of the $350 billion allotted for the first round of PPP loans. The Corona virus has had a major effect on our economy and caused millions to lose their jobs, and many businesses to be impacted financially to the point of shutting down. We all need to realize that this recession is not a financial recession, it is a healthcare recession caused by the pandemic. Even amidst an upcoming political election with strong opinions on both sides, our economy has already started seeing signs of improvement. Unemployment numbers are beginning to rescind, and the stock market is beginning a strong rebound. The Corona virus (COVID-19) has impacted us all either personally or indirectly with friends and family that have been infected. As devastating as it is, compared to the 1918 Spanish flu which killed over 50 million worldwide, 2.5% of the entire world population, the 2020 Chinese virus (COVID-19) has accounted for over 170,000 deaths worldwide only 0.01% of the world population. The Spanish flu came and went in about 25 months, and this current pandemic is following close to the same timeline.

No, it has not been a year of PERFECT VISION, but it has been a year of CLEAR VISION for the Community Banks throughout our Nation and right here in Georgia. Never has Community Banking received so many POSITIVE accolades for doing the right thing for our customers, our local economy and even non customers that needed our help for survival. We have shown the strength of knowing our customers and building relationships that will last a lifetime. COMMUNITY BANKING is alive and doing quite well!!!

Corner GENERAL COUNSEL

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Lyn G. Clinton

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Corrie E. Hall

Attorney (478) 749-9949

chall@jamesbatesllp.com FinTech Limbo: Updates on Challenges to Special Purpose National Charters and Other State Regulatory Efforts By Lyn G. Clinton, Michael N. White and Corrie E. Hall On July 31 2018, the Office of the Comptroller Currency (“OCC”) announced that it would begin accepting applications for special purpose national bank charters from nondepository financial technology (“FinTech”) companies engaged in the business of banking. This announcement, however, was met with controversy and litigation. As a result, to date, the OCC has yet to issue a “FinTech Charter”. While the FinTech Charter remains ensnared in the court system, the OCC and state regulators alike have looked at other ways to license and regulate FinTechs. This article details the legal challenges to issuance of a FinTech Charter to date and the efforts by the OCC and state regulators to create a solution for FinTech licensing and regulation. Under the OCC’s Policy Statement on Financial Technology Companies’ Eligibility to Apply for National Bank Charter, a FinTech could obtain a national bank charter that permits the FinTech to conduct business across multiple states. By obtaining this charter, a FinTech could streamline its licensing requirements and regulatory burdens and preempt many state law requirements. Understandably, community banks and their trade associations share concerns that a FinTech Charter will put community banks at an unfair advantage compared to a FinTech with a national bank charter. A key competitive concern is that the FinTech may not have to meet the same regulatory standards as a depository institution. State regulators are also concerned that such a charter will allow FinTechs to usurp state consumer protection laws that state regulators are better positioned to oversee. Approximately two years ago, the New York Department of Financial Services (“NYDFS”) instituted the first legal challenge to the OCC’s authority to issue FinTech Charters by filing suit against the OCC in the Southern District of New York. The legal question at the heart of that suit is whether the OCC has authority under the National Bank Act to grant a charter to an entity that does not accept deposits – i.e. does the “business of banking” require accepting of deposits. The OCC contends that the National Bank Act does not require the applicant to accept deposits if “it can present the OCC with a viable business model that does not require it.” However, the Southern District ruled in favor of NYDFS, ruling that only depository institutions are eligible to receive national bank charters from the OCC. The OCC has since appealed this ruling to the United Circuit Court of Appeals for the Second Circuit, where the appeal remains pending. Against this uncertain backdrop, the Comptroller announced in a June 2020 podcast with the American Bankers Association the OCC’s plans to introduce a “Payments Charter 1.0” which would be a “national version of a state money transmission license.” An OCC Payments Charter would enable a payment company to function on a national platform regulated by the OCC, but still preempt state money transmitter licensing requirements. Like the FinTech Charter, the Payment Charter is being to be met with opposition from state and local regulators and bank trade associations.

On July 29, 2020, the American Bankers Association and the Independent Community Bankers Association, together with several other trade associations, delivered a letter to the OCC sharing their concerns over the proposed Payments Charter. This letter encourages the OCC to “be careful not to introduce risks that might undermine the trust or establish asymmetries that would encourage regulatory arbitrage” and requests an open and transparent process in considering new charters. The letter also highlights the importance of bank holding company oversight of any holding company of a special purpose national bank. It is yet to be seen whether the OCC FinTech Charter or the Payments Charter will emerge from litigation or gain sufficient support for implementation. However, many state regulators are not waiting on an answer to this question. Over half of the state regulators across the county have agreed to a uniform processing approach for money transmitter and money-services business, including Georgia which was one of seven states that agreed to a uniform process in 2018. This prompts another question – will the innovation and streamlining initiatives by state regulators alleviate the desire for the FinTech Charter or the Payments Charter?

The regulatory landscape for FinTechs remains one to watch over the coming years, as answers to these various questions play out under the watchful eyes of regulators and community banks alike.