OCC Urges Second Circuit to Reverse Fintech Charter Decision

On April 23, 2020, the Office of the Comptroller of the Currency (“OCC”) filed its opening brief defending its special purpose fintech charter in the U.S. Court of Appeals for the Second Circuit.

The special-purpose charter, initially proposed by former Comptroller Thomas Curry in December 2016, would permit vetted non-depository fintech companies to operate under a federal charter overseen by the OCC without the burdens of state-by-state regulation and licensing. However, the program faced criticism and lawsuits from state regulators. Click here for our prior coverage on this lawsuit.

The New York Department of Financial Services (“DFS”) led the challenge against the fintech charter in Lacewell v. Office of the Comptroller of the Currency in federal district court action in the Southern District of New York. In May 2019, Judge Victor Marrero ruled against the OCC, denying its motion to dismiss and holding that the DFS had Article III standing to show that OCC’s charter was a threat to DFS’s authority over the nearly 600 non-depository fintechs. In October 2019, Judge Marrero entered a final judgment in favor of DFS and set aside the OCC’s regulations with respect to any fintech charter applications.

On appeal to the Second Circuit, the OCC urges in its opening brief for a reversal of Judge Marrero’s decision. The OCC first argues that the DFS lacks standing since its alleged injuries are not ripe, premised only on hypothetical because the OCC has not yet received or taken any steps toward approving an fintech charter application. According to the OCC, a “mere announcement” it will entertain applications “does not cause any concrete harm to DFS.” The OCC also maintains that the DFS claims fail because the OCC’s interpretation of its authority to issue charters is reasonable and entitled to Chevron deference. The OCC argues that the National Bank Act (“NBA”) is ambiguous as to whether the “business of banking” requires deposit taking. Finally, the OCC argues that that any relief sought by the DFS should be “geographically limited to New York,” since the DFS “only asserts harm with a nexus to New York.”

While the industry awaits a decision on whether the OCC fintech charter will survive, fintech companies have sought alternative charters. In March 2020, Square, Inc. became the first U.S. fintech company to receive conditional approval from the Federal Deposit Insurance Corporation’s (FDIC) Industrial Loan Company (ILC) charter to pair with Square’s prior state charter from the Utah Department of Financial Institutions. Unlike the challenges plaguing the OCC fintech charter, the FDIC’s decision signals an alternative banking pathway for fintech companies. Click here for our prior coverage of Square’s ILC charter.

The case is Lacewell v. Office of the Comptroller of the Currency, case number 19-4271, in the U.S. Court of Appeals for the Second Circuit.