WASHINGTON — After raising vociferous objections to the Office of the Comptroller of the Currency’s plans to offer a fintech charter, state regulators on Wednesday sued the federal agency, arguing it lacks the legal authority.

“The OCC’s action is an unprecedented, unlawful expansion of the chartering authority given to it by Congress for national banks,” John Ryan, the president and CEO of the Conference of State Bank Supervisors, said in a press release. “If the OCC is allowed to proceed with the creation of a special purpose nonbank charter, it will set a dangerous precedent that any federal agency can act beyond the legal limits of its authority.”

The suit, filed in U.S. District Court for the District of Columbia, lays out the state regulators’ fundamental complaint that they've had from the beginning against the OCC’s charter, namely that the agency does not have statutory authority to create a special-purpose charter.

Citing the National Bank Act, the bank supervisor group argued that the OCC has the authority to charter only those firms engaged in the “business of banking." The agency would need “specific congressional approval” to create a charter for nondepository institutions, as the OCC plans to do, the group said.

“The OCC’s proposed action ignores Congress, seeks to preempt state consumer protection laws, harms markets and innovation, and puts taxpayers at risk of inevitable fintech failures,” Ryan said.

Beyond the CSBS, a number of state regulators have been vocally opposed to the fintech charter, including New York's superintendent for financial services, Maria T. Vullo. They have argued that the charter would preempt their authority to impose consumer protection requirements, such as usury caps, on fintech companies that might obtain the national charter.

John W. Ryan, president and CEO of the Conference of State Bank Supervisors.
The proposed federal charter "will set a dangerous precedent," warns John Ryan of the state regulators' trade group.

The OCC’s initiative has also sparked opposition from consumer protection groups and community banks.

Comptroller of the Currency Thomas Curry has responded to critics that the OCC has the legal power to offer the charter, and that it will ensure that fintechs obtaining it will face banklike standards. The agency plans to impose capital requirements and ask firms to submit financial inclusion plans in the spirit of the Community Reinvestment Act, as well as resolution plans.

Since first floating the idea of the fintech charter last year, the OCC has issued several new updates, open for public comment, indicating how it plans to implement the charter and regulate the fintech firms under it.

For fintech companies, the national charter could be an opportunity to skip the state-by-state licensing system and only deal with a single federal regulator and set of requirements.

But states argue that they are better positioned to observe the risks and opportunities of the growing fintech industry, and that the fintech charter would strip them of their ability to protect consumers within their borders.

"State regulators already supervise a vibrant financial services marketplace that includes nonbanks and banks,” Ryan said. “That regulatory structure has produced a robust platform for innovation. “

Several states have pledged to better coordinate among themselves to facilitate the licensing process and disparate regulatory requirements faced by fintech firms.

“Moving forward," Ryan said, "state regulators will continue to streamline regulation and automate licensing across state lines, ensuring the system will work even better for state-licensed companies and consumers while protecting taxpayers.”

Lalita Clozel

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