State regulator group, others back lawsuit against OCC fintech charter
WASHINGTON — State regulators, academics and consumer advocates filed separate amicus briefs in a lawsuit against the Office of the Comptroller of the Currency this week, arguing the national bank regulator lacks the authority to grant a special-purpose fintech charter.
The New York State Department of Financial Services filed suit against the OCC more than two years ago, claiming the charter — designed for firms seeking basic banking powers without deposit insurance — would represent a significant federal overreach. The case is currently in front of the 2nd U.S. Circuit Court of Appeals.
In its brief filed Thursday, the Conference of State Bank Supervisors argued that while the OCC has yet to grant any special-purpose fintech charters, the agency has already damaged state regulators by attracting companies towards its federal charter on illegitimate grounds.
"Because OCC has circumvented the process for active companies to switch to national charters and its approach retroactively deprives states of their supervisory authority, [the New York Department of Financial Services] is actually injured even before a charter is granted," the CSBS wrote.
In recent years, the CSBS has mounted its own legal challenge against the OCC, suing the agency twice because of the charter. But both times, the group's case was thrown out — mostly recently in September 2019 — effectively because no firms have yet received a charter.
Meanwhile, a brief filed on Wednesday by a group of 33 banking law scholars, argues that the OCC does not have the authority to issue a bank charter without the requirement for deposit insurance.
“The proposal by the Office of the Comptroller of the Currency ... to charter nondepository financial technology ... firms is a dangerous power grab premised on the novel claim that banking is just another word for lending,” they wrote.
A second brief, filed Thursday by the National Consumer Law Center, Center for Responsible Lending and National Community Reinvestment Coalition, focuses on states' rights and the risks of high-cost fintech lenders being able to skirt state interest rate caps.
“Predatory lenders will be eager to obtain a national bank charter so that they can charge rates well over 100% APR that are illegal under most state laws,” the consumer advocates said. “High-cost lenders, often under the ‘fintech’ label, are already trying to exploit banks’ preemptive powers to evade state rate caps by using rent-a-bank schemes.”
The OCC declined to comment on the amicus briefs from the group of academics and consumer advocates, but a spokesperson pointed to other briefs filed in support of the agency's position.
David Zaring, a professor at the University of Pennsylvania's Wharton School, argued in a brief filed in April that the OCC is in compliance with regulations dating back to 2003, when the OCC established a process for granting “special purpose” bank charters in general.
In the course of that rulemaking, Zaring wrote, the OCC would eventually define "the business of banking" as revolving around at least one of three core functions: receiving deposits, paying checks or lending money.
"The regulation’s definition of banking was not challenged after promulgation, nor in the years that followed," Zaring continued. "In fact, the first legal challenge was raised fifteen years later by the plaintiff here, when the OCC decided to rely upon the existing regulation to offer [special-purpose national bank charters] to fintech companies."