State regulators refile suit to block OCC's fintech charter

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WASHINGTON — State regulators have refiled their lawsuit against the Office of the Comptroller of the Currency in attempt to block the national regulator from offering a federal bank charter for fintech firms.

The Conference of State Bank Supervisors Thursday filed a complaint in the U.S. District Court for the District of Columbia, arguing that the special purpose national bank charter recently being offered by the OCC goes beyond its statutory authority by allowing nonbanks into the banking system.

“Common sense and the law tell us that a nonbank is not a bank,” said CSBS president and CEO John Ryan, in a press release. “Thus, CSBS is calling on the courts to stop the unlawful, unwarranted expansion of powers by the OCC.”

The CSBS and New York’s Department of Financial Services separately filed suits in 2017 while the OCC’s fintech charter was still a proposal. But the courts dismissed that case saying it was not ripe for consideration.

The OCC finalized the fintech charter July 31, causing the NYDFS to refile its suit Sept. 14. The CSBS signaled that it, too, would refile its suit on similar grounds.

"The New York State Department of Financial Services (DFS) strongly supports the action taken today by the Conference of State Bank Supervisors,” said NYDFS Superintendent Maria T. Vullo, in a statement responding to the CSBS suit. The OCC’s fintech charter “threatens to create an entirely new federal regulatory regime, threatening state sovereignty, community banking, and strong state consumer protection laws, including New York’s usury laws.”

An OCC spokesperson said Thursday that the OCC is “confident” in its authority to issue a fintech charter and has offered special purpose charters in the past.

“While the OCC does not comment on litigation, the OCC is confident in its statutory authority to issue national bank charters, including special purpose charters, to companies engaged in the business of banking and that qualify,” the OCC spokesperson said in an emailed statement.

“Contrary to the misleading claims by the Conference of State Bank Supervisors president and CEO in his news release that have nothing to do with the legal authority to issue such charters, it is incorrect to assume that state consumer protection laws cease to apply when a company becomes a national bank,” the OCC spokesperson added. “State laws that address anti-discrimination, fair lending, debt collection, taxation, zoning, crime and torts all generally apply to national banks and would also apply to special purpose national banks.”

No company has yet applied for the fintech charter though OCC officials have recently said they have been discussing it with interested firms. Part of fintech firms' concern is whether state regulators will succeed in blocking the charter and how the OCC will apply banking standards to fintech firms.

“There is still conceptual interest in the OCC’s FinTech charter, but the effort is hampered by litigation risk and operational uncertainty,” wrote Isaac Boltansky, director of policy research for Compass Point Research & Trading, in an analyst note Thursday. “On the operational front, there are still substantive questions relating to the charter framework's treatment of capital standards, liquidity rules, resolution planning, and financial inclusion requirements.”

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Fintech regulations Online banking Licenses and charters Maria Vullo CSBS OCC NYDFS