WASHINGTON — A recent court decision allowing New York’s financial regulator to proceed in a case attempting to block the Office of the Comptroller of the Currency from offering fintechs a new federal banking charter is having a chilling effect on potential applicants, OCC chief Joseph Otting said.
In a recent sit-down with American Banker, Otting said he no longer expects to have a fintech firm formally apply for the new special purpose bank charter in the second quarter of the year, after
“I [previously] said in the second quarter” the OCC would have an applicant, but “clearly with this ruling, that is going to chill that a little bit,” Otting said in the interview.
It’s been almost a year since the OCC began offering the first national bank charter for fintechs. No firm has yet applied partly due to concerns over the pending lawsuits with the New York agency, as well as a similar one brought by the Conference of State Bank Supervisors.
In both cases the states argue the OCC has overreached its National Bank Act authority by not requiring applicants for the special purpose charter to receive deposits. Otting and the OCC have long argued they can offer a charter to an applicant in “the business of banking” if it meets only one of three things: take deposits, pay checks or lend money.
The decision on whether a national bank needs to receive deposits will be paramount for the financial industry pending the courts’ rulings. Judge Victor Marrero of the U.S. District Court for the Southern District of New York opened the door for this debate when he denied the OCC’s request to dismiss the case with New York agency. He further suggested the state regulator's argument may have merit.
“Such dramatic disruption of federal state relationships in the banking industry occasioned by a federal regulatory agency lends weight to the argument that it represents exercise of authority that exceeds what Congress may have contemplated in passing the NBA,” Marrero said in his order. “Indeed, if DFS's characterization of the impact is accurate — which the Court assumes, given the posture of this Order ... the OCC's reading is not so much an ‘interpretation’ as ‘a fundamental revision’ of the" National Bank Act.
Otting, however, remains adamant that the OCC is within its legal bounds and not every national bank needs to collect deposits.
“I respect the judge who made the decision. ... However, we still feel we have the legal authority to do this,” Otting said. “If you apply his principle, then every bank would have to have an active deposit to do anything in the banking industry ... we intend to defend what we think is our legal right.”
The OCC also filed a request to dismiss the other case with the bank supervisor group. A decision is still pending on whether that case will proceed, but state regulators took Marrero’s recent decision as a positive indicator.
“As to the similar litigation CSBS has with the OCC, we continue to believe that the OCC has acted outside its congressional mandate in seeking to grant national bank charters to nonbank entities,” John Ryan, the bank supervisor group's president and chief executive, said in a statement issued May 2. “We look forward to our case, as well as New York’s, resulting in a clear message that the OCC does not have the authority to preempt state laws, including for consumer protection, by unlawfully expanding its mandate.”
