OCC Asks Second Circuit to Hear Fintech Charter Dispute

Financial Services Law

As expected, the Office of the Comptroller of the Currency (OCC) has requested a federal appeals court to reverse a decision by a lower court denying the OCC’s motion to dismiss a lawsuit challenging its plans to issue special purpose charters to fintech companies.

The decision in this case—the second action filed by the New York Department of Financial Services (DFS) on the issue—stands in contrast to the dismissal of the DFS’s first lawsuit and two other similar complaints filed by the Conference of State Bank Supervisors (CSBS) challenging the OCC’s authority.

What happened

The battle over the OCC’s decision to grant national bank charters to fintech companies dates back to 2016, when the agency initially considered whether to allow special purpose national bank (SPNB) charters to be issued to fintech companies. After the OCC published draft standards in 2017, both the DFS and the CSBS filed suit to challenge the proposal.

Why? For its part, the state regulators claim that OCC does not have the authority to grant the SPNB charters, and that they are better regulators of lending activity than the OCC or other federal regulators. There are political overtones here as well, as the federal regulators have noticeably taken their foot off the gas under the current administration.

The OCC was successful in its first round of motions to dismiss, with both the New York and Washington, D.C., courts tossing the cases, finding that the controversy was not ripe for judicial review since there were no applicants for the SPNB charters.

However, the cycle began all over again in July 2018, when the OCC announced that it would begin accepting applications for the SPNB charters, triggering a second round of lawsuits from the CSBS and the DFS.

The OCC again filed motions to dismiss both actions.

In a surprising decision, U.S. District Court Judge Victor Marrero not only refused to dismiss the New York case but signaled a win for the DFS, writing that “the term ‘business of banking,’ as used in the [National Bank Act], unambiguously requires receiving deposits as an aspect of business.”

The OCC has now filed a notice of appeal to the Second Circuit, seeking review of the New York district court’s decision.

To read the notice of appeal in Lacewell v. OCC, click here.

Why it matters

While the courtroom drama continues to play out, one thing remains clear: The challenge to the OCC’s plan to grant SPNB charters is preventing fintech companies, that would otherwise meet all the qualifications, from obtaining these limited purpose charters so that they can operate responsibly and efficiently on a nationwide basis.

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