Since the Office of the Comptroller of the Currency has not reached a final decision on whether to grant special-purpose national bank charters to financial technology companies, a New York regulator’s challenge to the OCC’s authority to grant fintech charters failed on standing and ripeness grounds.
A federal district judge said that the New York Department of Financial Services’s purported injuries are too future-oriented and speculative to confer standing. Similarly, the claims are unripe because they are “contingent on future events that may never occur” (Vullo v. Office of the Comptroller of the Currency).
The issue first arose when the OCC began considering the possibility of issuing special-purpose national bank charters to fintech companies under its regulations. To support its position that a fintech charter decision had been reached, DFS relied on several OCC documents:
- a White Paper—Exploring Special Purpose National Bank Charters for Fintech Companies;
- a speech by Comptroller Thomas J. Curry touting innovation in the fintech industry as a vehicle to expand financial inclusion for low-income individuals;
- a summary of public comments about the possibility of issuing charters to fintech companies; and
- the “Comptroller’s Licensing Manual Draft Supplement: Evaluating Charter Applications From Financial Technology Companies”
Since the OCC has not yet determined whether it will issue charters to fintech companies, nor received any applications, DFS claims that the OCC had determined that it has the power to issue these charters were an insufficient basis for a claim. Without a decision that such licenses will be considered and potentially granted, in the court’s view, the application process remains purely hypothetical.
In fact, the proposed issuance of fintech charters companies, a policy first discussed by an appointee of President Obama, has become increasingly uncertain under President Trump’s two Comptrollers of the Currency, Keith Noreika and Joseph Otting, the court noted. By waiting for a decision, the court would be saved from issuing a decision that may turn out to be unnecessary if the OCC never issues a fintech charter or does so under an altered framework.
CSBS litigation. Similar litigation brought by the Conference of State Bank Supervisors in the U.S. District Court for the District of Columbia remains pending. In April 2017, the CSBS filed suit against the OCC for deciding to create a new special-purpose national bank charter for financial technology and other nonbank companies. The CSBS alleged that the fintech charters would exceed the OCC’s authority under the National Bank Act.
Most recently, the CSBS filed a response in opposition to the OCC’s motion to dismiss claims against the agency for lack of jurisdiction and failure to state a claim. In its latest filing, the CSBS addresses a number of procedural issues related to standing, ripeness, finality, and timeliness in addition to the larger issue of whether the OCC even has the authority to issue nonbank charters to institutions that do not accept deposits.
The CSBS asserts that the OCC has the power to charter a national bank only if it is organized to carry on the "business of banking" (which, under current law, requires taking deposits, at a minimum) or where Congress has provided specific authorization to charter an entity to carry on a special purpose. The CSBS contends neither of those apply here.
In fact, the CSBS argues that the NBA expressly bars the OCC from issuing national bank charters to entities that do not lawfully engage in the business of banking. To lawfully engage in the business of banking, the CSBS asserts, an entity must comply with the Federal Reserve Act by becoming an insured bank under the Federal Deposit Insurance Act. To do this, a bank must actually take deposits, absent special Congressional exemption. Under this interpretation, the OCC could not rightfully issue charters to nondepository fintech companies.
The CSBS further relies on the legislative history and historical context of the NBA as well as the Bank Holding Company Act’s definition of "bank" to support the conclusion that a national bank must exercise the power of receiving deposits.
The term "business of banking" cannot be considered in a vacuum, the CSBS cautions. The OCC’s reliance on the argument that "business of banking" is not expressly defined in the NBA ignores the conflicts its interpretation creates with the FRA, FDIA, and BHCA.
Courts have repeatedly struck down the OCC’s attempts to charter entities that would not carry on the business of banking, and the OCC has been required to obtain specific congressional authority before doing so. For example, specific legislative authorization was required for both trust banks and banker’s banks to receive special purpose charters.
The CSBS alleges that the OCC improperly relies on case law that pertains to the inner limits of the business of banking and not the outer limits at issue here where the OCC is trying to expand its authority and that the OCC unreasonably equates the business of banking with the definition of a bank branch in an impermissible construction of statutory authority.
Commenting on the New York decision, CSBS said that it stands by its arguments in the District of Columbia case, “confident that the courts will determine that Congress has not given the OCC this authority.”
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