February 6, 2023

Volume XIII, Number 37

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February 03, 2023

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NY Department of Financial Services Fintech Charter Lawsuit Dismissed—For Now

The US District Court for the Southern District of New York (SDNY) has dismissed without prejudice the fintech charter lawsuit brought by New York Department of Financial Services (NYDFS) Superintendent Maria T. Vullo against the Office of the Comptroller of the Currency (OCC). As we have previously reported, in March 2017, the OCC issued draft guidelines for a special purpose national bank charter for financial technology companies, often referred to as the “fintech charter.” The NYDFS filed a lawsuit in May 2017 challenging the OCC’s authority under the National Bank Act to grant special purpose national charters to fintech companies.

The OCC moved to dismiss the lawsuit for lack of subject matter jurisdiction and failure to state a claim, arguing that the NYDFS lacked standing, the claims were not ripe for decision, and the claim regarding the OCC special purpose national bank regulations was time-barred. Further, the OCC argued there had been no final agency action for the SDNY to review under the US Administrative Procedures Act.

The SDNY granted the OCC’s motion to dismiss for lack of subject matter jurisdiction, and concluded that the OCC has not yet determined whether it will issue a fintech charter and the guidelines remain in draft form, and that the injuries alleged by the NYDFS are “too future-oriented and speculative to constitute an injury in fact.” In addition, under the standard for assessing the ripeness of a claim, the SDNY stated that NYDFS’s claims are unripe because they are contingent on future events. Because it dismissed the action for lack of jurisdiction, the SDNY did not reach the OCC’s motion to dismiss for failure to state a claim.

The SDNY decision was jurisdictional and not substantive in nature, and because the dismissal was without prejudice, NYDFS is free to refile its action in the future. According to the opinion, NYDFS had asked that if the court dismissed the claim based on ripeness, it require the OCC to provide prompt and adequate notice if and when a decision is made to accept fintech charter applications. The SDNY stated that without subject matter jurisdiction it could not impose such a requirement, but suggested “that it would be sensible for the OCC to provide DFS with notice as soon as it reaches a final decision given DFS’s stated intention to pursue these issues and in consideration of potential applicants whose interests would be served by the timely resolution of any legal challenges.”

So where do matters go from here? The SDNY basically said that it would not hear a challenge to the OCC’s fintech charter until the OCC either grants such a charter or adopts final chartering rules and guidance. But will that happen? During his tenure as acting Comptroller of the Currency, Keith Noreika expressed support for the concept of a fintech charter, but was noncommittal on whether the OCC would grant a fintech charter and whether any company would meet the OCC’s standards and expectations for the charter. In turn, recently appointed Comptroller Joseph Otting thus far has not spoken publicly on the issue, which may suggest that the fintech charter initiative could be on hold for the time being. Moreover, the challenge to the OCC fintech charter by the Conference of State Bank Supervisors remains ongoing, although there is a decent chance that that action will suffer the same jurisdictional fate as the NYDFS action.

We expect the saga of the OCC fintech charter to continue well into 2018. At this time, it remains anyone’s guess as to whether the OCC will ever issue a fintech charter, although the current status quo could change at any time. That said, until (or if ever) the OCC takes final action on the charter initiative, there may not be much to discuss—or litigate—about the matter.

Copyright © 2023 by Morgan, Lewis & Bockius LLP. All Rights Reserved.National Law Review, Volume VII, Number 349

About this Author

Melissa R.H Hall, Financial services attorney, Morgan Lewis
Of counsel

Melissa R. H. Hall represents US and overseas banks, nonbank financial services companies, investors in financial services, and technology companies in regulatory and corporate matters. She advises them on a wide range of state and federal financial regulatory laws and regulations. She provides counsel on financial regulatory compliance and enforcement, including state and federal licensing requirements, consumer financial products and compliance, payment systems, corporate and transactional matters, financial institution investment and acquisition, and the development...

Charles Horn, financial services attorney, Morgan Lewis

Charles M. Horn is a partner in Morgan Lewis's Investment Management and Securities Industry Practice. Mr. Horn focuses his practice on regulatory and transactional matters, primarily in the areas of banking and financial services. He works on behalf of domestic and global financial institutions of all sizes on regulatory, supervisory, enforcement and compliance matters before all major federal financial institutions regulatory agencies, and leading state financial regulatory agencies.