WASHINGTON — On the heels of a joint state lawsuit opposing the Office of the Comptroller of the Currency’s fintech charter, New York’s banking regulator on Friday filed its own individual lawsuit, asking the courts to block the charter.

“The OCC’s fintech charter is lawless, ill-conceived, and destabilizing of financial markets that are properly and most effectively regulated by New York and other state regulators,” Maria T. Vullo, New York’s superintendent for financial services, said in a statement.

“This charter puts New York financial consumers — and often the most vulnerable ones — at great risk of exploitation by newly federally chartered entities seeking to be insulated from New York’s strong consumer protections,” Vullo said.

"This charter puts New York financial consumers — and often the most vulnerable ones — at great risk of exploitation by newly federally chartered entities," said Maria Vullo, the superintendent of the New York State Department of Financial Services.

The lawsuit alleges that the OCC fintech charter will harm New Yorkers by allowing companies to operate in the state without following local consumer protection requirements, encouraging the creation of “too big to fail” institutions that are not insured by the Federal Deposit Insurance Corp. and advantaging large players in the fintech industry.

Other state regulators said they backed the New York State Department of Financial Services’ lawsuit, filed in U.S. District Court in the Southern District of New York.

The Conference of State Bank Supervisors “strongly supports the lawsuit filed today by” the New York agency, John Ryan, the group’s president and CEO, said in a press release. “The OCC does not have the authority to issue federal charters to non-banks, and its unlawful attempt to do so will harm markets, innovation and consumers.”

The bank supervisor group sued the OCC last month, alleging the agency has no statutory authority to issue the special-purpose national bank charter, which would be open to nondepository institutions.

In its lawsuit, the New York regulator stakes a similar position, arguing that the OCC would need explicit congressional authorization to issue a fintech charter.

“The OCC’s action is legally indefensible because it grossly exceeds the agency’s statutory authority,” the lawsuit said. “Congress clearly intended the ‘business of banking’ necessarily to include deposit taking.”

However, the New York regulator also made more concrete claims of harm, in contrast with the bank supervisors' lawsuit, which relied primarily on abstract legal arguments. That is important since in many cases, a plaintiff must show actual harm in order to bring a lawsuit.

The charter, for instance, would allow fintech companies operating in New York to evade bonding requirements, liquidity and capital standards, the New York regulator charged.

“The fintech charter decision therefore strips customers of nondepository money transmitters of critical financial protections otherwise guaranteed by New York law,” the complaint said.

In addition, the New York agency alleges that the fintech charter would allow companies with the charter to operate in New York without following the state’s interest rate caps.

“Marketplace lenders that use the internet can now gouge New York borrowers by receiving an OCC special-purpose charter and locating in any number of other states that authorize interest rates considered usurious in New York,” said the complaint.

Specifically, the New York regulator said it was concerned that the charter would offer an avenue into the state for payday lenders and “other high-interest, small-dollar lending” currently illegal in New York.

And the New York agency explicitly called out the potential losses the fintech charter could create in licensing assessments to the state regulator. If companies get chartered by the OCC, the New York agency will lose revenue in licensing, thus depriving it "of crucial resources,” it said.

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Lalita Clozel

Lalita Clozel covers fintech regulation, anti-money-laundering, cybersecurity and the Federal Deposit Insurance Corp. in American Banker's Washington bureau.