WASHINGTON — A panel of appeals court judges on Thursday delivered a blow to efforts by state regulators to challenge the Office of the Comptroller of the Currency’s fintech charter.
The three judges on the 2nd U.S. Circuit Court of Appeals reversed a
Yet the ruling released Thursday may only be a temporary victory for the OCC, which has had to navigate state legal challenges against the special-purpose charter for years. Echoing past rulings by other courts, the judges said the New York regulator could not claim any harm from the charter because no firm has applied or been approved to receive it.
The Second Circuit declined to weigh in on the case’s thornier legal questions.
“Having determined that [NYDFS] lacks ... standing, and that its claims are not constitutionally ripe, we lack jurisdiction to decide the remaining issues on appeal,” Judge Joseph F. Bianco wrote in the decision. “Specifically, we do not address the district court’s holding, on the merits, that the ‘business of banking’ under the NBA unambiguously requires the receipt of deposits.”
The judges found that NYDFS lacked sufficient standing “because it failed to allege that the OCC’s decision caused it to suffer an actual or imminent injury in fact,” according to court filings.
For state advocates, the reason for the ruling — the absence of any fintech charter recipients — is
“We find" that the New York deparment "lacks Article III standing" and that its Administrative Procedure Act claims "are constitutionally unripe,” Bianco wrote, “because no non-depository fintech has filed a formal [special-purpose nonbank] charter application, nor is it known whether such an application will be granted if filed.”
The legal fight between the OCC, the New York agency and other state bank regulators centers around the National Bank Act and what’s known as the “business of banking” — taking deposits, facilitating payments and making loans.
With a special-purpose charter, first introduced by former Comptroller Thomas Curry in late 2016, the OCC said it could authorize charter recipients to do just one or two banking activities, rather than all three. A charter for a fintech firm not interested in taking deposits could, in theory, avoid supervision by the Federal Deposit Insurance Corp.
The Second Circuit decision Thursday reverses the 2019 ruling from U.S. District Judge Victor Marrero in New York, who wrote that the National Bank Act’s “business of banking” clause “unambiguously requires that, absent a statutory provision to the contrary, only depository institutions are eligible to receive national bank charters from the OCC.”
In a statement, OCC spokesperson Bryan Hubbard said the agency appreciated the court’s decision but indicated that it would continue a staff review of fintech chartering practices initiated by acting Comptroller Michael Hsu last month.
“As stated elsewhere, Acting Comptroller Hsu has initiated a review of OCC regulatory matters including those related to the standards the agency uses to evaluate charter applications and to ensure such decisions are carefully weighed in the broader context of our interconnected financial system,” Hubbard said.
Linda Lacewell, superintendent of NYDFS, said in a statement that the court's finding did not weigh "the merits of the legality" of the fintech charter, and she called on the "new leadership of the OCC" to "reconsider this ill-advised program."
"It is incumbent upon us to work together in our dual state-federal financial system to ensure both safety and soundness of industry and protection of the consumers who rely on financial products and services," Lacewell said. "We take our responsibilities seriously and continue to remain vigilant on behalf of consumers.”
