As we reported last fall, New York Department of Financial Services Superintendent Maria T. Vullo stated that she was “ardently opposed” to the Office of the Comptroller of the Currency’s (OCC’s) intention to process applications for a new financial technology (fintech) company charter. We now see just how much her counterparts in other states share that view, as the state bank regulators recently came together under the Conference of State Bank Supervisors (CSBS) banner to ask the federal courts to stop the OCC’s fintech charter initiative.
In its complaint in Conference of State Bank Supervisors v. Office of the Comptroller of the Currency filed on April 26 in the US District Court for the District of Columbia (Complaint), the CSBS has asked the court to declare that the OCC’s creation of the fintech charter is unlawful and that the OCC be enjoined from pursuing this initiative—saying, in substance, that the OCC doesn’t have the statutory authority to grant nontraditional bank charters of this nature.
Last fall, the OCC concluded that the National Bank Act gives the OCC the authority to charter a fintech company—provided that the company is engaged in one or more of the “core” banking functions of accepting deposits, making loans, or paying checks. The Complaint, however, asserts that the OCC is stepping beyond its statutory chartering by creating what it characterizes as “a new charter for nonbank companies that would not be engaged in deposit-taking” or other expressly authorized purpose under the National Bank Act, and that the OCC’s fintech charter initiative is arbitrary and capricious agency action that must be reversed under the Administrative Procedure Act (APA).
The Complaint also alleges that the OCC’s fintech charter initiative falls short of the APA’s procedural requirements by not following proper public notice and comment procedures in making what the CSBS describes as a “fundamental change in national bank regulatory policy.”
Of course, it is far too early to predict how this action will play out, inasmuch as the Complaint puts into play basic principles of OCC regulatory authority and administrative law processes that will have to be litigated. The CSBS action is motivated largely by state regulatory concerns that the charter would allow fintech companies to operate outside the boundaries of state regulation, but the Complaint calls squarely into question the limits of the OCC’s chartering authority and injects a further level of uncertainty into the OCC’s fintech charter program. In turn, we believe that the CSBS action will act as a further disincentive for at least some fintech companies to pursue a national bank charter at this time.