State Regulators Sue OCC Over FinTech Charter
11/01/2018The Conference of State Bank Supervisors (CSBS) has sued the Office of the Comptroller of the Currency (OCC) to prevent it from granting charters for special purpose national banks (SPNBs) to non-depository FinTech companies.
The CSBS filed the lawsuit upon the OCC’s announcement on July 31, 2018 that it would begin accepting these applications. The CSBS previously sued the OCC over its ability to provide SPNB charters in April 2017. The federal district court in D.C., however, dismissed the first suit for lack of subject matter jurisdiction and ripeness, stating that the OCC had not decided whether to grant SPNB charters to FinTech firms at that time.
The new CSBS lawsuit claims that the OCC’s decision exceeds the agency’s statutory authority under the National Bank Act (NBA), which mandates that the operations of federally chartered banks must be limited only to firms that engage in the “business of banking.” They argued that taking deposits plays an inherent role in the “business of banking,” therefore the OCC lacks the authority to award bank charters to non-depository institutions. The CSBS also believes the OCC’s decision to accept SPNB charters is in violation of the Tenth Amendment, in that the OCC’s oversight of non-depository institutions would preempt state regulation without Congressional authorization.
The CSBS also claimed that the OCC failed to adequately address public comments that expressed significant concerns with the SPNB charter, and that the charter’s preemption of state regulatory authority harms state regulators by undermining their ability to enforce existing laws and regulations. Further, the CSBS argued that the OCC did not follow the proper notice and comment procedures applicable to preemption interpretations under the NBA, but rather relied on informal feedback in response to its white paper and policy statement detailing the SPNB charter.
This lawsuit follows a similar complaint recently filed against the OCC by Maria Vullo, the Superintendent of the New York Department of Financial Services, who claimed that the SPNB charter poses a threat to New York consumers and businesses. Superintendent Vullo argued that the risks associated with the SPNB charter include weakening of controls on predatory lending practices, creating more “too big to fail institutions” and putting smaller firms at a competitive disadvantage to large, well-capitalized FinTech firms.
Superintendent Vullo also claimed that the OCC has exceeded its statutory authority under the NBA and that the OCC’s decision to accept SPNB charters is in violation of the Tenth Amendment.
It remains to be seen what effect these lawsuits may have on the OCC’s ability to grant SPNB charters. However, in the meantime, Comptroller of the Currency Joseph Otting has said he expects the agency to be ready to approve or deny applications for the charters by mid-2019.