US fintech community dealt blow by federal court as charter is denied
Judge Victor Marrero ruled that the Office of the Comptroller of the Currency (OCC) cannot issue bank charters to institutions that don’t take deposits, in a blow to the agency’s efforts to offer limited national charters to financial technology firms, according to the Wall Street Journal.
The OCC’s charter, which aimed to give fintechs an alternative route to a banking licence without having to go through the state, was denied by the courts as the judge sided with the plaintiff and the superintendent of the New York State Department of Financial Services, Linda Lacewell.
The federal judge ruled in favour of Lacewell’s arguments on the grounds of the National Bank Act’s ‘business of banking’ clause, which “unambiguously requires that […] only depository institutions are eligible to receive national bank charters from [the] OCC”.
In other words, the OCC cannot issue bank charters to non-bank entities, largely because, as argued by those opposed to the charter, it would create an unfair playing field for the country’s financial industry, where regulated banks which take deposits will still have to be chartered by the state.
Lacewell called the charter an “attempt to usurp state authority by establishing a federal fintech regulatory framework at the expense of consumers”.
The charter would have meant that fintech companies could have operated across the country without the need to be fully regulated, instead of getting 50 separate state charters and piggy-backing off well-established banks, fintechs would have been able to operate with just one overarching charter.
Financial regulators against the OCC’s charter included the Conference of State Bank Supervisors (CSBS) and the New York State Department of Financial Services. Both departments filed lawsuits claiming the OCC lacks the power to create a federal charter for nonbank firms.
The charter was formally proposed in December 2016, and had quite a broad scope. The agency’s whitepaper published on the proposal defined the fintechs it was trying to help – often referred to as ‘special purpose national banks’ – as companies which “may limit [their] activities to fiduciary activities or to any other activities within the business of banking”.
The OCC will be appealing the decision by the US courts. One spokesperson notes that: “The agency disagrees with the decision and the court’s interpretation of the authority the National Bank Act grants the OCC,” citing an alternative 1863 law.