WASHINGTON — State regulators’ suit against the Office of the Comptroller of the Currency is a high-stakes gamble, one that could establish an important limit on the agency or backfire against local supervisors and solidify its power.
The Conference of State Bank Supervisors has been hinting for months that it might challenge the OCC’s fintech charter, arguing repeatedly that the agency lacked the statutory authority to act. But courts have generally deferred to an agency’s interpretation of relevant law, making the outcome of the lawsuit filed Wednesday far from certain.
“It all boils down to the question of whether the OCC has statutory authority to issue these charters,” said John Beaty, a partner at Venable. “It's a clash of the titans.”
Moreover, the CSBS has acted preemptively against the OCC, suing the agency before it has finalized its requirements to grant a fintech charter. That has fueled speculation that part of the CSBS’ move may be to delay the charter until new leadership is installed at the OCC, or perhaps even to frighten away potential applicants.
“The OCC has not finalized their process and they have not chartered anybody,” said Scott Pearson, a partner at Ballard Spahr who advises both fintechs and banks. “I just don't see how this is ripe at this point.”
The preemptive move could make it harder for the CSBS to convince a judge that it has standing in the case. If the OCC has not taken any concrete actions yet, it is harder to argue that state regulators have been harmed.
“The question is whether the Conference of State Bank Supervisors really has a dog in the fight,” Pearson said. “There hasn't been any injury at this point.”
John Ryan, the CEO of the bank supervisor group, said it was reacting after several rounds of public statements and comments publicly opposing the OCC’s initiative.
“We have commented on the process and participated in the process, and it seemed to us that our concerns haven't been addressed and this is moving forward,” Ryan said. “It seems like the right time.”
But others say the CSBS is moving now before a new comptroller is nominated and confirmed by the Trump administration. Comptroller of the Currency Thomas Curry’s term has officially expired, but he plans to stay until a successor is in place. It’s not clear when the president will nominate someone.
A new comptroller may be less likely to take on the issue, particularly given the blowback from state regulators, consumer groups and lawmakers from both political parties.
The lawsuit “is absolutely there to slow it down,” said Brian Knight, a senior research fellow at the Mercatus Center. “So that when new OCC leadership is in place, they may not view the fintech charter as an area that they want to prioritize or plan to spend legal and political capital on.”
The lawsuit may also scare off wary fintech firms when the charter is finalized, observers said.
“There could be multiple tactical goals that the states have,” said Pratin Vallabhaneni, an associate at Arnold & Porter Kaye Scholer. “And one may be not just with the suit itself. It could be sending a message to prospective applicants.”
Individual state regulators have already broadcast their opposition to the OCC charter.
Jan Owen, California’s commissioner of the Department of Business Oversight, said she had already reached out to fintech companies to share her views.
“The OCC doesn't have the jurisdiction or authority,” she told them.
It’s better, she suggested, to opt for a “a state regulator that wants to work with them and really wants to look at these companies as the path forward,” she said in an interview.
Owen added that if a company currently licensed in California were to obtain a national charter with the OCC, this would not stop California from eyeing its practices.
“I have a consumer services office,” Owen said. “We would work with the federal regulators should we have some problems in California.”
Fintech companies do not want to burn bridges with state regulators — particularly with the details of the national fintech charter still up in the air.
“Companies are in a weird spot,” said Cliff Roberti, a policy adviser at DLA Piper. “They want to maintain their relationships with state regulators; however, they cannot ignore the impact that a uniform set of standards will have on their business, as well as the cost of capital for their customers.”
Indeed, once a fintech company obtains the charter it would likely still need some level of buy-in from the states.
"Moving the business from the [state-licensed] structure to the [de novo bank] structure doesn’t just require OCC review,” Vallabhaneni said. “It requires state-level review as well.”
Still, some say the lawsuit will not necessarily have a strong chilling effect on the firms.
For one, the OCC has not formally called for applications, and the lawsuit does not ask for a stay or preliminary injunctive relief, which could require the OCC to immediately halt its efforts.
In addition, many fintech companies were already aware of the states’ position on the charter, and expected a legal challenge.
“It's going to actually expedite it,” said Beaty, the Venable partner. “This uncertainty about statutory authority has been weighing on the minds of applicants.”
The lawsuit also comes at a fortuitous political time. The CSBS’s argument is grounded in an argument over the OCC’s authority to interpret the National Bank Act, which gives it the ability to charter banks.
It is one of several ongoing lawsuits challenging how much leeway courts have traditionally afforded regulators in interpreting the laws they enforce. And the latest nominee to the Supreme Court has a history of opposing this deference, often referred to as the Chevron doctrine.
“My reaction really is this might come down to a question of whether Justice [Neil] Gorsuch is as much of a literalist as [former] Justice [Antonin] Scalia was,” Beaty said.