OCC names acting comptroller

The US Treasury has appointed Michael Hsu as acting Comptroller of the Currency, replacing Trump appointee Blake Paulson, as tensions around community reinvestment and true lender rules increase.

Hsu’s appointment to lead the Office of the Comptroller of the Currency (OCC) came on 7 May and he took office on 10 May, four months after Paulson’s appointment.

Hsu joins the OCC from the division of supervision and regulation at the Federal Reserve Board of Governors, where he was an associate director and led an internal committee that supervised the United States’ largest banks.

Hsu will take the post of first deputy Comptroller of the OCC, one of four deputies that the Treasury Secretary appoints, and act as Comptroller from that office. The Biden administration has not yet appointed a permanent Comptroller, who when appointed will have to be confirmed by the Senate.

Hsu said that his priority as acting Comptroller will be to focus on “solving urgent problems and addressing pressing issues until the 32nd Comptroller is confirmed.”

Having begun as an attorney with the Federal Reserve Board, Hsu’s career has included roles with the International Monetary Fund, the US Department of the Treasury, and the Securities and Exchange Commission.

“Mike has devoted his career to the stability and supervision of America’s banking system,” said US treasury secretary Janet Yellen, who made the appointment. “He is among the most talented and principled regulatory officials that I have had the pleasure of working with, and I am confident he will execute this role with integrity and efficiency.”

Hsu is the fourth person to head the OCC in the last year. Joseph Otting, its last senate-confirmed comptroller, resigned midway through his five-year term in May 2020; he was succeeded on an interim basis by recent hire Brian Brooks, who departed the agency in January, to be succeeded by Paulson.

After stepping down, Paulson will resume his duties as senior deputy comptroller and the OCC’s chief operating officer, which he had held before becoming acting comptroller.

He welcomed Hsu to the role, adding, “It has been a great honour to serve as acting Comptroller of the Currency. I look forward to supporting Mike in his new role and continuing to contribute to the agency’s important mission”.

"It is a tremendous honour to serve as Acting Comptroller of the Currency", Hsu said. "I appreciate the confidence Secretary Yellen has shown in me by appointing me to this important post. I am looking forward to building on the agency’s long history and rich heritage."

Hsu’s new agency has been the source of some of the most contentious regulatory initiatives in US bank regulation of the last year, including a controversial amendment to its application of the Community Reinvestment Act (CRA), a putative “fintech charter” that is currently the subject of litigation in the New York courts, and a rule designed to determine the “true lender” under certain bank partner programmes.

The CRA ruling – an initiative of Otting’s that he identified as the chief priority of his term – gave banks more flexibility over what counts as credit under the statute, which has been in place since 1977 to ensure banks meet the credit needs of low- and moderate- income neighbourhoods

The ruling was widely opposed by Democrats, and faces lawsuits from both the National Community Reinvestment Coalition and the California Reinvestment Coalition for being issued without interagency consensus. Opponents have raised fears the rule will allow banks to edge out lower-income borrowers and communities by inflating CRA ratings and by earning more credit for larger loans and investments.

A letter of 7 May, authored by the Bank Policy Institute research group along with nine other banking associations, asked the OCC to formally withdraw the June 2020 ruling rather than to re-work it.

The letter said that it recognised that the new comptroller would not pursue the 2020 rule, but that formal withdrawal or significant delay was necessary to prevent banks wasting resources on meeting the compliance date of January 2023.

Banking associations have also been vocal in lobbying the OCC not to repeal its “true lender” rule, as a group of state attorneys-general have asked it to do, but rather to amend it. In March US Senator Chris Van Hollen, a Democrat, introduced a congressional resolution of disapproval against the rule under the Congressional Review Act.

A letter from a group of six banking associations including the American Bankers Association, said that invalidating the rule would “create significant legal impediments to creating a much-needed framework for providing safe and affordable credit to consumers”.

Although the rule should be clarified, the letter continued, it provided necessary “clarity” on the muddy waters of determining the true lender within bank-nonbank partnerships.

Paulson waded into these waters during his stint as acting comptroller, saying in a 14 April letter to Congress that legislating against the  true lender rule “will constrain future comptrollers’ ability to address the true lender issue and may limit the OCC’s ability to take supervisory or enforcement actions against banks”.

Hsu will also be responsible for the agency’s approach to the chartering of fintech companies, as lawsuits continue against the special-purpose bank charters for fintech companies first issued by the regulator in 2016.

State-level regulators challenged the OCC’s authority to provide the charter, arguing that fintechs did not fall within the remit of traditional banking. The OCC, under Paulson, has instead issued conditional national charters to fintech companies, including crypto company Paxos in April.

Get unlimited access to all Global Banking Regulation Review content