Fintech Challenge by States Says OCC Exceeded Powers

By Gregory Roberts and Chris Bruce

The comptroller of the currency has exceeded his authority by proposing a national bank charter for financial technology companies, and a federal court should tell him to back off, the organization of state banking officials said in a legal filing April 26 ( Conf. of State Bank Supervisors v. Office of the Comptroller of the Currency , D.D.C., 17-cv-00763, complaint filed 4/26/17 ).

The lawsuit by the Conference of State Bank Supervisors, filed in the U.S. District Court for the District of Columbia, said the Office of the Comptroller of the Currency “not only acted beyond its statutory authority but also failed to consider the effect of its actions on the states’ authority to regulate traditional areas of state concern.”

According to the CSBS, the OCC lacks authority for the move under the 1863 National Bank Act, which the CSBS says limits the OCC’s sway to bona fide banks that accept deposits.

“Absent a clear expression of congressional authority and intent to preempt state law, the states retain the power to regulate and supervise non-depository companies, and the nonbank charter decision represents an unlawful and unconstitutional assertion of preemptive authority by the OCC,” the CSBS said in its complaint.

The CSBS comprises the top banking regulator in each of the 50 states, the District of Columbia and several U.S. possessions. The organization has persistently criticized the so-called fintech charter idea, arguing that it not only lacks legal standing, but it would weaken consumer protections provided by state laws.

The OCC declined to comment on the lawsuit.

Comptroller Thomas Curry announced in December that his agency planned to issue the fintech charters as part of an effort to encourage “responsible innovation” in financial services, which are experiencing revolutionary changes because of emerging technologies.

A national charter would override state licensing laws and could prove attractive to online platform lenders, money transmitters and other companies that now must navigate the state-by-state patchwork of regulations.

Lawsuit Seen as Premature

In March, the OCC spelled out the mechanism for evaluating applications for the optional charters, in the form of draft revisions to the agency’s licensing manual. The agency accepted comments on the draft for a month, but has taken no additional action since.

Curry’s December announcement “left no doubt that the OCC’s decision to offer special-purpose charters to fintech companies was final and not tentative or interlocutory,” the CSBS, addressing a potential issue with the timing of its complaint.

“It seems to me that the litigation is way premature,” John Douglas, head of the bank regulatory practice at Davis Polk & Wardwell LLP, in Washington, told Bloomberg BNA. “There are so many things that have to fall in place before someone gets one of these charters.”

Curry has repeatedly asserted the OCC’s authority to issue charters so long as the recipients perform one of the three core banking activities: accepting deposits; making loans; or paying checks, with the OCC interpreting “paying checks” as including issuing debit cards or abetting electronic payments.

The CSBS complaint points to past court rulings and legislative activity to support its arguments about the limits of the foundational national bank law, but Douglas said Curry can cite similar history in rebuttal.

“The statute has been around for 154 years,” Douglas said. “My sort of gut sense is that the comptroller has the right to interpret his own statute and what the business of banking is and isn’t.”

To contact the reporters on this story: Gregory Roberts in Washington at groberts@bna.com; Chris Bruce in Washington at cbruce@bna.com

To contact the editor responsible for this story: Michael Ferullo at MFerullo@bna.com

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