Office of the
Illinois Attorney General
Kwame Raoul

Chicago — Illinois Attorney General Kwame Raoul led a coalition of 20 state attorneys general in sending a letter to federal banking regulators raising concerns about granting national banking charters to financial technology companies, often referred to as fintechs, without necessary safeguards to protect consumers, investors and the financial system. The attorneys general call on regulators to deny charters to fintechs that have a history of predatory lending or risky practices.

In their letter to the leadership of the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation and the Board of Governors of the Federal Reserve, the attorneys general observe that there has been a dramatic increase in the number of fintechs seeking to become banks in the last year, including cryptocurrency companies and peer-to-peer and other payment platforms.

“As state enforcers, attorneys general are often the first line of defense and have historically detected the early warning signs of dangers to consumers and the financial system,” Raoul said. “Some fintech lenders use predatory tactics that target the financially vulnerable and further trap them in cycles of debt. Loans are often extended without checking a consumer’s ability to repay, and as a result, borrowers frequently default. Granting these companies banking charters would allow bad actors to dodge state consumer protections and could be a threat to our nation’s financial system.”

Raoul and the coalition note that many of the companies seeking charters have a history of engaging in high-cost and predatory lending, in violation of state laws, and high-risk practices that threaten both consumers and the stability of the financial system. The attorneys general warn that giving these companies the status of national banks would allow them to circumvent state interest rate limits and other state consumer protections. It would also let some companies present themselves as banks to gain consumer trust without taking on the corresponding responsibilities of traditional banks, such as community reinvestment programs and robust compliance infrastructures.

The coalition’s letter raises concerns that allowing companies with higher risk profiles — such as companies issuing cryptocurrency that could scale to trillions of dollars or offering risky financial products — to access national banking privileges will introduce systemic risk to the financial system without the corresponding safeguards that protect consumers and the market when traditional banks fail.

The coalition is calling on federal regulators to deny bank charters, bank holding company applications, bank mergers and acquisitions, deposit insurance, or other national banking privileges to companies that have a history of excessively risky or predatory practices.

Joining Raoul in sending the letter are the attorneys general of Arizona, California, Colorado, Connecticut, the District of Columbia, Hawaii, Maine, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Jersey, New Mexico, New York, Oregon, Rhode Island, Vermont and Washington.