Lawmakers Press Bank Regulators on Tech Rules and Delays

The Senate Banking Committee has convened a hearing pressing the OCC, FDIC, and Federal Reserve on why critical technology-related banking regulations remain stalled years after Congress directed their development. Committee Chair Tim Scott explicitly characterized the regulatory delays as "a failure of administrative responsibility that leaves both innovators and consumers in an unacceptable limbo" — signaling that patience with regulatory inaction on fintech, AI, and crypto banking rules has exhausted.

For fintech companies, banks deploying AI, and crypto businesses seeking banking access, the hearing represents both frustration (rules remain unclear) and hope (Congressional pressure may finally force action).

The Three Stalled Rulemakings

1. Fintech Charter Framework (stalled since 2020).

The OCC proposed a special-purpose national bank charter for fintech companies in 2016. After legal challenges, the concept evolved into a "fintech licensing" framework that would provide a federal pathway for non-bank financial companies to operate nationwide. Status: concept papers issued, ANPR published, but no proposed rule after 6 years of discussion.

Impact of delay: Fintechs must obtain 50+ state licenses to operate nationally (money transmitter, lending, etc.) — costing $3-5M and taking 2-3 years. A federal charter would consolidate this into a single license. The delay forces continued state-by-state licensing that disadvantages innovative companies and protects incumbent banks from competition.

2. AI in Lending Oversight (stalled since 2023).

Five federal regulators (OCC, FDIC, Fed, CFPB, NCUA) jointly proposed guidance on AI/ML use in credit decisions in 2023. The guidance addressed: model risk management, fair lending compliance for opaque ML models, explainability requirements, and continuous monitoring standards. Status: public comment period closed 2024; final guidance still not issued.

Impact of delay: Banks and fintechs deploying AI underwriting operate without definitive compliance standards. Some deploy aggressively (risking future enforcement if rules are strict); others delay deployment (missing competitive advantage). The uncertainty costs the industry an estimated $2-4B annually in either over-compliance or opportunity cost.

3. Crypto Banking Guidance (repeatedly issued and rescinded).

The OCC issued interpretive letters in 2020-2021 permitting banks to custody crypto, hold stablecoin reserves, and participate in blockchain networks. These were partially rescinded in 2022-2023 under a different administration. SAB 121 (accounting guidance restricting bank crypto custody) was implemented then rescinded. Status: no coherent, stable framework exists.

Impact of delay: Banks that built crypto capabilities (BNY Mellon, State Street, U.S. Bancorp) face regulatory uncertainty about whether their services can continue. New banks wanting to offer crypto face contradictory precedents. The void is filled by state regulators (Wyoming, New York) whose frameworks don't provide national clarity.

Congressional Frustration

Committee members from both parties expressed unusually pointed criticism:

Sen. Tim Scott (R-SC, Chair): "We directed the OCC to develop a fintech framework in the 2020 appropriations rider. It's 2026. Six years. How many fintech companies have gone bankrupt waiting for a license they were promised?"

Sen. Elizabeth Warren (D-MA): "The AI lending guidance was supposed to protect consumers from algorithmic bias. Three years later, companies are making millions of AI lending decisions with no regulatory guardrails. Every day of delay is a day consumers face potential discrimination with no recourse."

Sen. Cynthia Lummis (R-WY): "Banks tell us they want to offer crypto services. Regulators tell us they're 'studying the issue.' Meanwhile, three of the four largest stablecoin issuers are offshore. We're exporting innovation because our regulators won't act."

The bipartisan nature of frustration is notable — usually fintech regulation divides along party lines. The shared anger suggests that Congressional action (mandating deadlines for regulatory action, or legislating directly where regulators refuse to act) is increasingly likely.

Why Regulators Delay

Agency representatives offered several explanations (none fully satisfying the committee):

Coordination complexity. Technology rules often require agreement among multiple agencies with different mandates (safety/soundness vs. consumer protection vs. monetary policy). Achieving consensus takes years. The agencies proposed a joint rulemaking streamlining process but haven't implemented it.

Technology evolution. "If we'd finalized AI lending guidance in 2024 based on 2023 technology, it would already be outdated given 2025-2026 AI advances." The agencies argue that fast-moving technology makes fixed rules premature — but critics counter that principles-based guidance could have been issued years ago.

Resource constraints. All three agencies report difficulty hiring technology-proficient staff who could draft credible fintech rules. The OCC has 18 open fintech specialist positions unfilled for 12+ months. Compensation restrictions (GS-15 cap of ~$180K) can't compete with private sector offers of $300K+.

Political risk. Regulators fear that permissive rules will be blamed for future failures ("you let fintechs do X and consumers lost money"), while restrictive rules face industry legal challenges. Inaction carries less personal career risk than action — creating bureaucratic incentive to delay.

Why This Matters

For fintech companies: Congressional pressure may finally force fintech charter action within 12-18 months. Companies should prepare: organize corporate structures for federal licensing, build compliance programs meeting anticipated (not yet published) standards, and maintain state licenses as fallback until federal framework materializes.

For banks using AI: The AI lending guidance delay doesn't eliminate compliance obligation — it just makes it unclear. Build AI governance programs based on existing model risk management standards (SR 11-7, OCC Bulletin 2011-12) plus the proposed (unfinalised) 2023 guidance. Document that you're following the best-available standard.

For crypto banking applicants: The regulatory void won't last. Whether Congress legislates (the Digital Asset Market Structure Act includes banking provisions) or regulators finally act, rules are coming. Position your institution to comply quickly once clarity arrives — not to build from scratch after rules publish.

For accounting firms: Client advisory on "how to comply with rules that don't exist yet" is a real and valuable service. Help fintech, AI-lending, and crypto-banking clients build compliance programs against probable (not certain) regulatory outcomes — creating optionality to adjust when final rules emerge.

For policy advocates: The hearing creates a window for formal comment and direct Congressional engagement. If specific provisions are important to your clients or industry, communicate them to Banking Committee staff NOW — while the frustration creates receptivity to external input on how rules should be structured.

The key takeaway: Congressional pressure on stalled fintech, AI, and crypto banking regulations signals that the 3-6 year regulatory vacuum is ending — either through forced rulemaking or direct Congressional legislation, clarity is coming within 12-18 months, and companies operating in these spaces should prepare compliance infrastructure now rather than scrambling after publication.