OCC Moves Forward With Fintech Charters, Seeks Lawsuit Dismissal

Financial Services Law

Holding the line on the future of fintech charters, Acting Comptroller Keith Noreika confirmed that the Office of the Comptroller of the Currency (OCC) will move forward with its plans to issue special purpose charters.

What happened

Last December, the OCC announced that it will consider applications from financial technology companies seeking national bank charters, enabling a fintech company to originate loans and access the payment system directly, without relying on third-party banks.

After accepting comments on the proposal—ranging from firm opposition to possible acceptance with some caveats and recommendations for the regulator—the OCC published draft licensing standards in March, just prior to the end of Comptroller Thomas J. Curry’s term in office.

With a new acting comptroller in place, the industry wondered whether the agency would move forward with the fintech charters or press pause. In remarks before the Exchequer Club in July, Noreika made clear the effort would continue.

“Quite simply, I think it is a good idea that deserves the thorough analysis and the careful consideration we are giving it,” he told attendees. “The OCC after all was created to administer a system of federal banks and that authority clearly includes granting charters to companies engaged in the business of banking. Over the decades, the business of banking has evolved, just as companies have adapted and changed. We should be careful to avoid defining banking too narrowly or in a stagnant way that prevents the system from evolving or taking proper and responsible advantage of advances in technology and commerce.”

Noreika refuted the argument that granting national bank charters to fintechs would create a disadvantage to banks, calling the position “backwards.” “The status quo disadvantages banks in many ways,” he said. “While charters would provide great value to the companies that receive them, the supervision that accompanies becoming a national bank would help level the playing field in meaningful ways.”

The acting comptroller also said the OCC would “vigorously” defend itself in the lawsuits challenging the charters brought by the Conference of State Bank Supervisors (CSBS) and the New York Department of Financial Services. Although he emphatically backed the agency’s authority to grant the charters, he was careful to note that the OCC has not finalized its plans.

“[A]t this point, the OCC has not determined whether it will actually accept or act upon applications from nondepository fintech companies for special purpose national bank charters that rely on [the special purpose national bank charter] regulation,” Noreika said. “And, to be clear, we have not received, nor are we evaluating, any such applications from nondepository fintech companies. The OCC will continue to hold discussions with interested companies as we evaluate our options.”

Making good on that promise, just days later the OCC filed a motion to dismiss the CSBS action, arguing that the complaint failed to present either a justiciable case or controversy or a reviewable final agency action, and that the group lacks Article III standing because the OCC has yet to take any relevant action that could have a concrete effect on CSBS or its members.

“The Complaint by [CSBS] represents a fatally premature attempt to invoke the jurisdiction of this Court to remedy a speculative harm that CSBS alleges may arise from future action by the [OCC]—action that the OCC may never take,” according to the brief in support of the agency’s motion to dismiss. “Stated succinctly, the OCC has not yet reached any decision with respect to whether it will offer the specific type of national bank charter—a charter for a Special Purpose National Bank [SPNB] that does not take deposits and conducts activities other than fiduciary activities—that is the subject of the present challenge.”

Citing the acting comptroller’s remarks at the Exchequer Club in support, the OCC told the court the agency “is actively exploring different approaches to leveraging its authority to charter national banks that would allow the banking sector to take advantage of new ideas and new technology. While the OCC is studying all aspects of the issue, it is clear that the OCC has made no final decision whether it will make a [SPNB] charter available.”

To read the acting comptroller’s prepared remarks, click here.

To read the OCC’s brief in support of its motion to dismiss in Conference of State Bank Supervisors v. Office of the Comptroller of the Currency, click here.

Why it matters

SPNB charters present challenging issues for the CSBS, which continues to try to hold its ground (and its authority) in offering a legitimate regulatory scheme for fintech companies that do not seek a full bank charter. Without yet playing its full hand, the OCC is still trying to position itself as the regulator of choice for fintech innovative service offerings. Will there be a place for both regulators at the end of what will undoubtedly be a lengthy review process? Only time will tell.



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