In the wake of Amy Coney Barrett's ascension to the Supreme Court, commentators are wondering what this may mean for the emerging field of digital finance or fintech regulation.
A more conservative court may be more fundamentally distrustful of federal powers, and the balance of power may shift more to the states than many realize.
As technology has exploded in recent years, so too have technology companies that touch the money in one way or the other. Financial regulators at the state and federal levels have been jockeying in recent years over who has the primary authority to regulate fintech.
A literalist interpretation of the Constitution, and a rejection of broad Chevron deference, are typically conservative judicial perspectives, yet these arguments support the states in their pursuit of unraveling recent OCC and other Federal actions, such as the loan assignment regulations promulgated in the wage of Madden v. Midland Funding.
And while case law at the Supreme Court on the bounds of the OCC’s authority shows no constant trend, note this fact: Justice Ginsburg herself wrote Supreme Court opinions confirming the right of federally regulated entities to deny state demands for additional supervision (see for example Watters v. Wachovia Bank, Supreme Court 2007). With her seat replaced by a conservative justice fundamentally skeptical of federal power, one can imagine more “state-friendly” decisions in this space in the coming years.
Be careful what you wish for: States seeking to limit Trump’s government potentially stand to gain most from the continued rightward shift in the judiciary. A limited federal government constrained by the Constitution and conservative courts can’t easily exercise broad authority over digital finance.
Take, for example, the OCC’s ongoing efforts to establish a Special Purpose National Banking charter. The OCC’s idea is, rather than dealing with 50 different state regulators with different rules, a federal regulator can provide a single point of oversight for certain non-deposit taking companies in the “business of banking.” This initiative, begun under the Obama Administration, was formally unveiled in 2018, and several states have since sued claiming it impinges on their authority to regulate financial activity within their state.
Interestingly, these historically progressive states are now suing the federal government, seeking to restrain it, saying the OCC’s actions exceed its constitutional authority. Historically, left-leaning policy seeks broad federal regulatory authority and broad discretion to Federal regulatory agencies. Supreme Court precedent, commonly called “Chevron deference,” states that federal agencies may pursue regulation they deem “reasonable” if relevant statutes or the Constitution are vague.
