OCC claims New York lacked standing to challenge fintech charters

August 14, 2020.

The U.S. Office of the is once again defending its ability to issue special purpose charters to fintech companies, arguing to a federal appeals court that the New York regulator whose lawsuit got the charters nixed lacked standing to bring claims.

In October, a federal judge said that the OCC lacked the authority to grant national charters to fintech companies, ruling that the National Bank Act only allows depository institutions to receive national bank charters from the regulator. The ruling was a win for the , which had sued to block the new charters, and other state regulators that feared allowing fintech companies to operate without complying with state-by-state rules, including limits on loan interest rates. 

quickly appealed the court’s decision, and in a brief filed Thursday to the Second Circuit, the regulator said the New York bank regulator’s lawsuit was filed before any harm had been done and therefore the judge should have dismissed the case. The OCC said it “has neither received nor taken any action to approve an application for a special purpose national bank … charter, let alone one from a non-depository fintech with a nexus to New York.”

Though the Department of Financial Services has said it is “exceedingly unlikely” that the OCC will never charter a fintech that operates in New York, the OCC said the state should wait until its predictions come to fruition before filing a lawsuit.

Additionally, the OCC said even if the state regulator had standing, the term “business of banking” does not require that a bank accept deposits to receive an OCC charter — in fact, the regulator said, the term is not defined in the act and a definition cannot be determined by dictionaries, legislative history or interaction with other federal banking laws.

“Indeed, the need for innovation in the banking industry — and the consequent flexibility concerning the contours of the business of banking — have routinely been recognized by the courts,” the OCC said.

For these reasons, the regulator said, the Second Circuit should reverse the district court’s decision.

The OCC initially considered issuing special purpose charters to fintech companies in 2016, publishing draft standards the following year. Legal challenges to the draft standards by the New York State Department of Financial Services and the Conference of State Bank Supervisors were dismissed.

When the federal government said it would begin accepting applications for the special purpose charters in 2018, however, the New York regulator sued again, leading to the October decision.

Last month, several fair lending groups filed an amicus brief urging the Second Circuit appeals court to uphold the lower court’s decision, fearing that special purpose charters will make it easier for predatory lenders to target consumers.