The Office of the Comptroller of the Currency (OCC) recently faced another setback in its attempt to issue a special purpose national bank charter tailored to fintech companies (fintech charter). A federal district court in New York held that the OCC does not have the authority to grant charters to companies that do not accept deposits. The ruling is a blow to the OCC's efforts to provide new avenues for innovation in financial services. The fintech charter would allow fintech companies, which do not accept deposits like traditional banks, to benefit from the same preemption of state laws and licensing requirements as national banks.
Following the OCC's July 2018 announcement that it would begin accepting applications from fintech companies, the New York Department of Financial Services (NYDFS) filed suit to block the OCC from issuing any fintech charters. The NYDFS argued in its complaint that issuing such charters (1) was beyond the agency's statutory authority under the National Bank Act, which authorizes the OCC to charter banks that "engage in the business of banking which at a minimum requires taking deposits unless Congress has expressly authorized otherwise," and (2) violates the Tenth Amendment, because a state retains the power to "regulate financial services and products delivered within [its] own geographical jurisdiction."
In May 2019, the court had denied OCC's motion to dismiss, holding in part that under the National Bank Act "only depository institutions are eligible to receive national bank charters from OCC." Seeing that the court had all but decided the central issue in the case, the OCC and NYDFS moved to proceed directly to judgment. The ruling last week marks the final judgment, and the OCC has already indicated that it will appeal the decision.
This is not the first challenge to the OCC's fintech charter. As previously reported, the OCC dodged two similar suits filed by the Conference of State Bank Supervisors. The district court in the District of Columbia dismissed those cases as not yet ripe. Unless overturned on appeal, the New York district court's decision prevents the OCC from issuing any fintech charters, essentially terminating the program.
The OCC will be hoping for more deference from the circuit court, and we will continue to monitor the case for any updates.