May 19, 2019

May 17, 2019

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Conference of State Bank Supervisors Sues To Stop OCC Fintech Charters

On April 26, 2017, the Conference of State Bank Supervisors (“CSBS”) filed a complaint against the Office of the Comptroller of the Currency (“OCC”) and Comptroller of the Currency Thomas J. Curry to block the agency from going forward with its proposal to grant special purpose national bank charters to fintech companies. The CSBS filed this lawsuit in the U.S. District Court for the District of Columbia.

In December 2016, Comptroller of the Currency Thomas J. Curry announced that the OCC intended to issue special purpose national bank charters to fintech companies. The white paper argued the OCC had authority under the National Bank Act (“NBA”) to grant special purpose charters to companies that make “bank-permissible, technology-based innovations in financial services” and that engage in at least one of three enumerated activities: receiving deposits, paying checks, or lending money. After a round of public comment—which included a critical comment letter from CSBS—the OCC released a draft supplement to its Licensing Manual that explained how it intended to evaluate fintech companies applying for special purpose charters.

The CSBS’s complaint argues that the OCC does not have the authority to grant such charters to fintech companies under federal law and that the proposal would inhibit state regulators’ ability to protect consumers. In a press release, CSBS President and CEO John Ryan stated, “The OCC’s action is an unprecedented, unlawful expansion of the chartering authority given to it by Congress for national banks.” Mr. Ryan further explained, “To protect consumers and taxpayers, to promote innovation, and to ensure fair and open competition, CSBS was forced to take legal action against the OCC charter.”

The complaint seeks declaratory and injunctive relief that would prohibit the OCC from providing special purpose national bank charters to fintech companies. It alleges that the OCC has exceeded its statutory authority under the NBA, which only permits the OCC to charter institutions in the “business of banking” or in certain specified activities that CSBS contends do not include fintech companies. CSBS’s complaint includes five counts:

  • Count 1 contends the OCC’s decision to grant special purpose national bank charters to fintech companies exceeds the agency’s statutory authority under the NBA;

  • Count 2 contends that OCC regulation 12 C.F.R. § 5.20(e)(1), which describes when the agency may charter a special purpose bank, and is the basis for the fintech charter decision, was promulgated without statutory authority under the NBA and unlawfully expands the OCC’s chartering authority;

  • Counts 3 and 4, both brought under the Administrative Procedure Act, contend that the OCC fintech charter decision was reached without following proper rulemaking procedures and was arbitrary and capricious; and

  • Count 5 contends that the OCC’s attempt to regulate nonbank fintech companies is a violation of the Article VI, clause 2 (Supremacy Clause) and the Tenth Amendment of the U.S. Constitution because it attempts to regulate without authority in conflict with state laws.

The case is No. 1:17-cv-00763 (D.D.C.).

© 2019 Covington & Burling LLP

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About this Author

Sam Adriance, Data privacy Attorney, Covington
Associate

Sam Adriance assists clients with financial regulatory and data protection issues, including financial privacy, consumer financial services, safety and soundness, and anti-money laundering. He assists banks, fintech companies, payment processors, credit reporting agencies, and other non-bank financial institutions both in a wide variety of regulatory matters and high-stakes government investigations brought by the DOJ, CFPB, FTC, and prudential banking regulators.

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