The Legal Trouble Surrounding OCC’s National Fintech Charter

Oct 12, 2018Federal Regulation, News

The Office of the Comptroller of the Currency (OCC) announced on July 31 that it would begin accepting applications for national bank charters from nondepository financial technology companies engaged in banking businesses. Since the announcement, the fintech charter has drawn widespread criticism and even several lawsuits.

The OCC released a press release in July announcing that it would move forward with national fintech charters. “The decision to consider applications for special purpose national bank charters from innovative companies helps provide more choices to consumers and businesses, and creates greater opportunity for companies that want to provide banking services in America,” said Joseph M. Otting, the Comptroller of the Currency. “Companies that provide banking services in innovative ways deserve the opportunity to pursue that business on a national scale as a federally chartered, regulated bank.”

Before the fintech charter was ever fully operational, New York’s Department of Financial Services (DFS)  and the Conference of State Bank Supervisors (CSBS) each filed suit seeking to block implementation of the special purpose bank charter system intended to bring FinTech companies away from state rule and under federal supervision. A federal judge dismissed New York’s lawsuit in December 2017. Four months later, a federal judge tossed CSBS’ lawsuit. The lawsuits were deemed speculative and prudentially unripe.

In September 2018, CSBS announced that it would file a second lawsuit against the OCC. “A federal court had ruled prior litigation as not yet ripe for consideration,” a press release said. “With the OCC’s July 31 announcement creating a federal fintech charter, the CSBS Board decided to reaffirm its commitment to challenge the OCC’s action.”

Two days after the CSBS announcement, the DFS filed its second lawsuit against the OCC. “The fintech charter decision is lawless, ill-conceived, and destabilizing of financial markets that are properly and most effectively regulated by New York state,” said Maria T. Vullo in the filing. “OCC’s action is legally indefensible because it grossly exceeds the agency’s statutory authority”

Craig Phillips, counselor to Treasury Secretary Steven Mnuchin, has called state regulators’ negative response to OCC’s fintech charter disappointing. “I’m really disappointed in kind of the reactions of the states to our report,” said Phillips. “In no way are we trying to undermine the role of state regulation and definitely there is a collaboration between states and the federal.”

Despite the criticism, the OCC national fintech charter is likely to proceed for now. Because no fintech company has obtained the OCC charter thus far, legal experts expect New York’s second lawsuit (and CSBS’ if filed soon) to be dismissed again as speculative and prudentially unripe.

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