On April 30, 2018, the United States District Court for the District of Columbia dismissed a lawsuit filed one year earlier by the Conference of State Bank Supervisors (CSBS) disputing the authority of the Office of the Comptroller of the Currency (OCC) to proceed with a plan to issue special purpose national bank (SPNB) charters to qualifying nonbank financial technology (FinTech) companies. The dismissal of the CSBS suit followed an earlier dismissal in December 2017 of a similar suit filed in a New York federal district court by the New York Department of Financial Services (NYDFS). Each of the courts found that the plaintiff parties lacked standing because of their failure to establish an injury in fact, and further found that the legal issues at hand were not ripe for judicial review, given the preliminary status of the OCC’s FinTech charter proposal.
The suits followed the roll-out of a plan by the OCC, beginning in August 2015, to study and promote responsible innovation in the federal banking system. In December 2016, then-Comptroller Thomas Curry announced that the OCC would offer SPNB charters to qualified FinTech and other nonbank companies. In exchange for federal supervision and regulation, such chartered companies would bypass the compliance costs and burdens that compound with each additional state charter/licensure scheme and the observance of multiple state laws. An accompanying white paper set forth minimum expectations for supervision by the OCC of such chartered companies, but noted that the specific framework for each company would be based on the individual conditions of approval set forth in each company’s charter. A later, March 2017, explanatory white paper clarified that the SPNB charters would be limited to FinTech companies that either (effectively) pay checks or lend money, but do not take deposits. Using somewhat circular logic, the OCC relied on its own 2003 internal regulation articulating a new definition of “core banking functions” as the authority for the expansion of its charter powers.
Like the NYDFS before it, the CSBS argued against OCC reliance on its own regulation, stating that the chartering authority of the OCC derives solely from the powers expressly granted it by Congress pursuant to the National Bank Act, as amended (NBA). Under the NBA, the OCC may only charter as national banks companies either engaged in the “business of banking” or whose special purpose is expressly authorized by Congress, which express SPNB authority currently extends only to trust banks, banker’s banks and credit card banks. Relatedly, the CSBS also questioned how an existing statute requiring national banks to become members of the Federal Reserve System will be effectuated if a SPNB-chartered FinTech company is not allowed to accept deposits. Other issues raised in the suits included the usurping by the OCC of traditional state licensing authority to regulate nonbank financial companies; safety and soundness considerations; the creation of an uneven playing field among OCC-regulated companies due to the individualized nature of the proposed OCC SPNB chartering process; and apprehension regarding federal preemption of existing state regulation over such matters as state usury laws and capital standards.
Notably, the Financial Services Committee of the U.S. House of Representatives also expressed concern about the OCC FinTech charter proposal in a letter dated March 10, 2017. The letter cautioned that any “haste to create a new policy for ‘FinTech’ charters” may lead to Congressional examination and legislative reversal of related OCC actions. The Committee signatories urged the OCC to “provide a full and fair opportunity for stakeholders to see the details of the special charter [and] solicit feedback . . . .” They also reminded Comptroller Curry of the impending expiration in April 2017 of his term, and urged him to “allow the incoming Comptroller the opportunity to assess the special purpose charter.”
From the time of the November 2017 confirmation of now-Comptroller Joseph Otting to early April 2018, there was little public discussion regarding the existing OCC FinTech charter proposal. The website for the OCC Office of Innovation has remained active, and interested parties are still invited to request individual meetings with OCC staff to explore ideas. But it now appears that the FinTech charter idea may yet again take center stage: Comptroller Otting recently announced that a formal OCC FinTech charter announcement will be forthcoming in the mid-June to September 2018 timeframe.
It seems only logical that any updated OCC position will take into consideration the possibility of further litigation absent express Congressional statutory authorization or mutual agreement with state financial regulators. It is even possible that such discussions are already taking place. The industry anxiously awaits the upcoming announcement.