Judge tosses out state regulators’ challenge of OCC charter a second time

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WASHINGTON — A federal judge for the second time has thrown out a lawsuit by state regulators challenging the Office of the Comptroller of the Currency's fintech charter.

Judge Dabney Friedrich, of the U.S. District Court for the District of Columbia, dismissed the Conference of State Bank Supervisors' claims because no fintech firm has yet applied with the OCC.

"The Court will grant the defendants’ motion to dismiss because CSBS continues to lack standing and its claims remain unripe," Friedrich wrote in her ruling, dated Tuesday.

Her decision echoed her ruling of May 2018, when she dropped a previous CSBS lawsuit on the basis that the OCC had not yet granted any charter. At that time, it was still unclear if Comptroller Joseph Otting would officially make the proposed charter available.

The bank supervisor group refiled the suit the following October after the OCC had finalized the charter framework and discussed it with firms potentially interested in applying. The state regulator group and the New York State Department of Financial Services, which has mounted its own legal challenge, have long argued that the OCC lacks the statutory authority to grant the tailored charter.

But Friedrich said in her latest ruling that "not much has happened" since the previous lawsuit.

"In its most recent complaint, CSBS does not allege that any financial technology company ... has applied for a charter, let alone that the OCC has chartered a Fintech," she wrote.

An OCC spokesperson hailed the decision, saying the agency "will continue to defend its statutory authority to issue national bank charters, including special-purpose national bank charters, to institutions engaged in the business of banking as evidenced by their taking deposits, paying checks, or lending money."

"It is important that the regulatory framework for the national banking system is allowed to evolve so that it can continue to meet to the changing needs of consumers, businesses, and communities it serves and so that we maintain the health of a dual banking system," the spokesperson said.

Yet the ruling did not appear to preclude legal challenges should the OCC accept or approve an application.

John Ryan, the bank supervisor group's chief executive, said in a statement that Friedrich's decision "did not rule on the merits of the case." He said the lawsuit "seeks to make clear that the OCC may not flout Congress and preempt state laws by granting national bank charters to nonbanks."

And a separate pending case brought by the New York regulator was given the green light by a judge in May of this year.

"State financial regulators continue to support the New York Department of Financial Services’ ... case against the OCC, which is proceeding over the same objections the OCC raised in the CSBS suit,” Ryan said.

The OCC had previously said that it expected its first nonbank applicant in the second quarter of 2019. But after the decision allowing the New York regulator's case to move forward, Otting said the legal challenges have had a chilling effect.

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