OCC seeks dismissal of states' lawsuit opposing fintech charter

Register now

WASHINGTON — The Office of the Comptroller of the Currency filed a motion to dismiss state regulators' legal claims that the federal agency cannot grant charters to fintech firms.

The case, refiled last year by the Conference of State Bank Supervisors in the U.S. District Court for the District of Columbia, was in response to the OCC announcing in July that it would accept applications for the new special-purpose charter.

No firm has yet applied for the charter partly over concerns about the pending litigation.

The New York State Department of Financial Services has pursued a separate lawsuit against the OCC, which, like the CSBS case, argues that the OCC does not have clear authority to grant a fintech a banking charter that does not require the firm to take deposits.

In its motion filed in the bank supervisor group's suit, the OCC said its authority permits "the use of new ways to conduct the very old business of banking.” The agency also took issue with states' claim that a firm must take deposits in order to be considered a bank.

“The conclusion that a national bank need only be engaged in one of the three core banking functions — receiving deposits, paying checks, or lending money — in order to be engaged in the ‘business of banking’ aligns with the context and structure of the National Bank Act and controlling Supreme Court and D.C. Circuit caselaw,” the OCC said in its motion.

“Many services or products that we now take for granted, such as ATMs, remote check capture, and online banking, were at one time cutting-edge advances. Innovation in the banking industry is inevitable” and the “federal banking system must adapt to the rapid technological changes taking place in the financial services industry,” the OCC added.

In a Sept. 18 op-ed, Comptroller of the Currency Joseph Otting said he was "confident that courts, if necessary, will uphold this authority if challenged."

In 2017, the bank supervisor group and New York State Department of Financial Services filed separate suits against the Comptroller's Office, but a judge dismissed the cases in 2018 before the OCC finalized its new charter, arguing the case was not ripe.

The OCC continued to argue in its latest motion that the case is not ripe because it has not offered a charter yet.

“At the present time, the OCC has not approved any application for an SPNB Charter, the regulatory milestone that the court held must first be reached before CSBS has standing to sue,” the Comptroller's Office said.

The agency has not yet responded to the separate case with the New York agency but will likely file a similar motion to dismiss soon.

Margaret Liu, senior vice president and deputy general counsel at the Conference of State Bank Supervisors, said in an emailed statement that the group "remains committed to our legal challenge."

"Agency announcements from last summer that it is soliciting and accepting applications for a national bank charter for nonbanks, along with publication of a final licensing manual supplement, require judicial intervention," said Liu. "The OCC’s actions exceed its statutory authority, stifle competition and innovation, and expose consumers to more risk by preempting state consumer protection laws.”

For reprint and licensing requests for this article, click here.