NYDFS lawsuit against OCC dismissed

On Dec. 12, 2017, a Manhattan federal judge dismissed a lawsuit filed in May by the New York Department of Financial Services challenging the U.S. Comptroller of the Currency's proposal to grant national bank charters to fintech companies. U.S. District Court Judge Naomi Reice Buchwald dismissed the case as premature since the OCC had not reached a final decision, and any purported harm would be speculative at this point.

Responding to the court's decision, NY DFS Superintendent Maria T. Vullo stated, "As set out in the Court's decision, the OCC represented to the Court that it has not yet determined whether it will issue charters to fintech companies and it has not received any applications for such a charter" and "we hope that the OCC will abandon its pursuit of the chartering of nondepository institutions."

The DFS lawsuit claimed the OCC exceeded its statutory authority when it proposed to issue such a charter. "As we have asserted, the OCC lacks the authority to issue fintech charters under the National Bank Act, an issue the Court did not reach," Vullo noted following the court's decision. She also endorsed the court's suggestion that the NY DFS be notified as soon as the OCC does reach a final decision on the matter to allow timely resolution of any legal challenges that may arise as a result.

Background on proposed charter

The concept for the proposed charter originated with an August 2015 initiative set forth by the OCC to develop a framework to evaluate new and innovative financial products and services. In Sept. 2016, the OCC made public that it was considering how to best implement a framework that would be receptive to innovation.

In December 2016, the OCC released a white paper outlining the proposed framework titled, Exploring Special Purpose National Bank Charters for Fintech Companies. The OCC then requested public comment on "whether it would be appropriate to consider granting a special purpose national bank charter to a fintech company," which sparked off debate from both sides.

Fintech firms roundly supported the proposed national charter, stating that it would enable companies to apply once and be covered in all 50 states, and promote innovation and financial inclusion.

A group of U.S. senators, wrote in a letter to the OCC that the new charter "seemed at odds with the goals of financial stability, financial inclusion, consumer protection and separation of banking and commerce that the OCC has upheld."

Critics argued that the existing state-based regulatory system be protected and creating an entirely new federal regulatory program might actually stymie innovation. In January, Vullo stated, "The OCC should not use technological advances as an excuse to attempt to usurp states laws that already regulate fintech activities."

In April 2017, a similar lawsuit was filed by the Conference of State Bank Supervisors in the U.S. District Court of Columbia, which also alleges the OCC would overstep its authority by granting charter status to nonbanks. In August 2017, the OCC filed a motion to dismiss the CSBS lawsuit. That case is pending.

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