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OCC Updates Comptroller’s Licensing Manual Booklet to Provide Guidance on Failure Acquisitions
On August 3, the Office of the Comptroller of the Currency (OCC) released OCC Bulletin 2017-26 announcing a revised version of its “Failure Acquisitions” booklet designed to provide guidance on several policies and procedures impacting national banks and federal savings associations interested in acquiring a failed depository institution through the FDIC’s bidding process. The booklet, which is part of the Comptroller’s Licensing Manual, covers:
- an overview of the process banks must follow when submitting a purchase and assumption (P&A) application, which requires OCC approval before a bank can begin the FDIC bidding process;
- considerations undertaken by the OCC when reviewing a P&A application;
- a description of the process and elements of the application, including public notice and competitive factors, as well as legal and accounting standards; and
- references and links to informational resources.
OCC Files Motion to Dismiss CSBS Suit Over Fintech National Bank Charter
On July 28, the OCC filed a motion in the U.S. District Court for the District of Columbia to dismiss a lawsuit brought by the Conference of State Bank Supervisors (CSBS) challenging the OCC’s fintech charter. See Conf. of State Bank Supervisors v. Office of the Comptroller of the Currency, Case 1:17-cv-00763-JEB (D.D.C. Jul. 28, 2017). In a memorandum supporting its motion to dismiss, the OCC argued that CSBS does not have standing to bring the case because the OCC has not yet come to a decision on whether it will make special purpose national bank charters available to fintech companies and other nonbank firms, and therefore, “[n]o tangible effect on CSBS or CSBS's members could even arguably occur until a 5.20(e)(1) Charter has been issued to a specific applicant.” For similar reasons, the OCC argued that the case was not ripe for judicial review.
Addressing the merits, the OCC cited Independent Community Bankers Ass’n of South Dakota, Inc. v. Board of Governors of the Federal Reserve System, 820 F.2d 428 (D.C. Cir. 1987), cert. denied, 484 U.S. 1004 (1988), arguing that the ruling confirms its authority to issue special purpose bank charters and “illustrates that the legal concept of a special purpose national bank power is not novel or unprecedented, but rather follows a decades-old OCC practice.” The OCC further argued that under the National Bank Act, the OCC’s interpretation of “the business of banking”—in which a special purpose bank “must conduct at least one of the following three core banking functions: receiving deposits; paying checks; or lending money”—deserves Chevron deference.
As previously discussed in a Special Alert, CSBS claimed the fintech charter violates the National Bank Act, Administrative Procedure Act, and the U.S. Constitution, and that the OCC has acted beyond the legal limits of its authority. Furthermore, CSBS asserts that providing special purpose national bank charters to fintech companies “exposes taxpayers to the risk of inevitable [fintech] failures.”
However, shortly after the OCC’s motion was filed, a federal judge ordered that the OCC’s motion to dismiss be stricken based on excessive footnoting. The judge, in a minute order on the docket, cited that the excessive number of footnotes “appear[] to be an effort to circumvent page limitations.” On August 2, the OCC filed a renewed motion to dismiss.
OCC Requests Pre-Motion Conference to Discuss NYDFS Fintech Challenge
On July 25, acting U.S. Attorney for the Southern District of New York, Joon H. Kim, filed a letter with the federal court in that district on behalf of the OCC, requesting a pre-motion conference to discuss its anticipated motion to dismiss the New York Department of Financial Service’s (NYDFS) suit against the OCC’s special purpose fintech charter. See Vullo v. Office of the Comptroller of the Currency, Case 17-cv-03574 (S.D.N.Y., Jul. 25, 2017). As previously covered in InfoBytes, NYDFS filed the lawsuit May 12 on the grounds that the charter is unlawful and would grant preemptive powers over state law. Kim cites the following three reasons for dismissal of NYDFS’s complaint:
- NYDFS lacks standing to bring the suit because, although the OCC has “publically [sic] contemplated the possibility of issuing fintech charters…those public statements do not amount to a ‘final agency action’ subject to challenge under the [Administrative Procedure Act].” Indeed, since any harm NYDFS can identify is “conjectural or hypothetical,” and it has not suffered any “actual or imminent” injury, the Court lacks subject matter jurisdiction.
- OCC’s interpretation of its statutory authority under the National Bank Act (NBA) refers to Section 5.20(e)(1), which “reasonably limits the issuance of charters to institutions that carry on at least one of three ‘core banking activities’ [such as] the receipt of deposits, the payment of checks, or the lending of money.” Thus, regulations that allow chartering approvals—even if the chartered companies don't take deposits—is reasonable because they carry on at least one core banking function.
- The Supremacy Clause of the U.S. Constitution would protect fintech banks chartered under the relevant OCC rules and entitle them to NBA protections against state interference. Kim noted that it “is well established that the Supremacy Clause operates in concert with the NBA to displace state laws or state causes of action that conflict with federal law or that prevent or significantly interfere with national bank powers.”
The OCC faces a separate fintech lawsuit in the District Court for the District of Columbia brought by the Conference of State Bank Supervisors. (See previous Special Alert.)
OCC Acting Comptroller Supports Fintech National Bank Charter
On July 19, Acting Comptroller of the Currency, Keith A. Noreika, spoke before the Exchequer Club about the proposed concept of granting special purpose charters for financial technology (fintech) companies. In prepared remarks, Acting Comptroller Noreika said the OCC has the authority to grant national bank charters to nondepository fintech companies in “appropriate circumstances.” However, he reiterated that having the authority does not imply a determination has been made as to whether the OCC will accept or grant applications from nondepository fintech companies that rely solely on regulation 12 CFR 5.20(e)(1), which outlines eligibility requirements for receiving special purpose national bank charters. To date, no such applications have been received.
The OCC continues to demonstrate its support for innovative developments and partnerships between banking and technology companies. As previously discussed in a Special Alert, the OCC issued a draft supplement in March to provide guidance for evaluating charter applications from fintech companies. “Providing a path for these companies to become national banks is pro-growth and in some ways can reduce regulatory burden for those companies,” Noreika remarked. However, the fintech special purpose national bank charter has recently met legal challenges from the New York Department of Financial Services (NYDFS) and the Conference of State Bank Supervisors (see Special Alerts here and here). Norieka stated that the OCC is developing its response to the NYDFS lawsuit “and plans to defend [its] authority vigorously.” He cautioned against defining banking too narrowly, and argued that fintech companies should be allowed to apply for national bank charters if they meet the criteria and are involved in the “business of banking.”
OCC Issues Branch Closings Booklet, General Policies and Procedures Booklet
On June 29, the OCC issued Bulletin OCC 2017-24, announcing its revised Comptroller’s Licensing Manual booklet, “Branch Closings,” replacing the booklet issued in April 2003. According to the Bulletin, the revised booklet describes the 90-day advance notice to the OCC and branch customers that a bank must observe before closing a branch. It also explains the specific timing, procedures, and forms of notice the bank must supply. The booklet, which applies to all national banks and federal savings associations, summarizes the different notice requirements for each under Section 42 of the Federal Deposit Insurance Act. It also lists steps for filing branch closing notices including: (i) sending advance notice to the OCC at least 90 days before closing; (ii) mailing notices to customers at least 90 days in advance; (iii) posting conspicuous notices at the branch at least 30 days in advance; and (iv) sending final closing notice to the OCC after the branch closes.
The notice requirement of Section 42 assists the OCC in assessing a bank’s record of opening and closing branches. The OCC reviews this record in examinations for compliance with Section 42 and in assessing performance under the Community Reinvestment Act (CRA). The OCC, the Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation (FDIC) adopted a “Joint Policy Statement on Branch Closing Notices and Policies” (Joint Policy Statement) in June 1991 to provide guidance regarding the requirements of the branch closing statute.
On July 5, the OCC issued an additional bulletin, OCC Bulletin 2017-25, revising the “General Policies and Procedures” booklet of the Comptroller’s Licensing Manual issued in March 2008. This booklet explains how to file applications or notices with the OCC, requirements of the filings, and the OCC processes for licensing filings. The revised booklet applies to national banks, federal savings associations, and other entities that are involved in certain transactions including: (i) organizing a new bank; (ii) opening or closing a branch; (iii) establishing subsidiaries; (iv) some changes to capital or debt; and (v) certain other transactions. The booklet describes important policies and includes sample forms, filing requirements, and fees. It also covers the OCC’s review, approval or denial, and subsequent consummation requirements and appeal procedures.
Texas Passes Law Repealing Vehicle Protection Product Regulatory Act
On June 15, Texas Governor Greg Abbott signed SB 2065. The law modifies a number of motor vehicle-related regulations and licensing requirements. Specifically, the law:
- eliminates the Vehicle Protection Product Act;
- abolishes the Vehicle Protection Product Warrantor Advisory Board;
- requires the warrantor of a vehicle protection product to pay expenses to the person who purchases the product or system if loss or damage occurs due to failure of the product or system;
- prohibits a retail seller from requiring a vehicle buyer—“as a condition of a retail installment transaction or the cash sale of a commercial vehicle”—to buy a vehicle protection product that is not installed on the vehicle at the time of the transaction, classifying this violation as a “false, misleading, or deceptive act or practice” actionable under the Deceptive Trade Practices-Consumer Protection Act; and
- eliminates the licensing requirements for boot operators and boot companies, but requires a booting company to remove a boot within an hour of being contacted by the owner or forfeit all removal fees.
The law takes effect September 1.
OCC Issues New Comptroller’s Licensing Manual Booklet to Provide Guidance on Articles of Association Amendments, Charters, and Bylaws
On June 19, the Office of the Comptroller of the Currency (OCC) released Bulletin OCC 2017-23 announcing a new booklet designed to provide consolidated guidance on several policies and procedures impacting national banks and federal savings associations when forming the framework of articles of association or charter documents. The “Articles of Association, Charter, and Bylaw Amendments” booklet, which is a part of the Comptroller’s Licensing Manual, covers:
- regulatory requirements for articles of association, charters, and bylaws;
- an overview of the process required to notify the OCC or obtain OCC approval of an amendment;
- requirements for the content of the articles of association, charters, and bylaws;
- actions a national bank or federal savings association should take during the amendment process; and
- references and links to informational resources and sample documents that national banks or federal savings associations may use during the amendment process.
OCC Issues Updated Procedures for Termination of Federal Charters
On June 7, the OCC released Bulletin OCC 2017-20 announcing a revised booklet covering termination of federal bank charters. The booklet, part of its Comptroller’s Licensing Manual, replaces “Termination of National Bank Status,” issued in April, 1998, and applies to all national banks and federal savings associations. According to the Bulletin, these are the highlights of the revised booklet:
- “provides an overview of policy considerations and evaluative factors that the OCC considers when reviewing notices to terminate a bank”;
- “outlines requirements and procedures that a bank should follow when completing the process to terminate, either through a merger, conversion, or liquidation, including completing related filings and notices”;
- “lists references and links to informational resources, sample forms, and documents that a bank may find useful during the termination process”;
- “incorporates revised regulatory requirements for terminating a bank.”
Updates include termination procedures and requirements from after July, 21 2011, when the Office of Thrift Supervision and the OCC were integrated.
South Carolina Governor Amends Mortgage Lender, Broker Licensing Requirements
On May 19, South Carolina Governor Henry McMaster signed into law amendments (S 366) to the state’s Mortgage Lending Act, Mortgage Broker Act, and related laws to revise a variety of mortgage lending definitions, licensing procedures and requirements, and disclosure obligations. The legislation also adds license requirements for mortgage lenders who act as mortgage brokers on the majority of their mortgage loans. The amendments take effect September 16, 2017.
NYDFS Files Independent Lawsuit Against OCC Fintech Charter
Following the April 26 lawsuit filed by the Conference of State Bank Supervisors (CSBS) opposing the OCC’s fintech charter (see previous InfoBytes post), the New York Department of Financial Services (NYDFS) filed its own lawsuit on May 12, asking the court to block the OCC from creating a new special purpose fintech charter. “The OCC’s charter decision is lawless, ill-conceived, and destabilizing of financial markets that are properly and most effectively regulated by New York and other state regulators,” NYDFS Superintendent Maria T. Vullo said in a statement announcing the lawsuit. “This charter puts New York financial consumers . . . at great risk of exploitation by newly federally chartered entities seeking to be insulated from New York’s strong consumer protections.” NYDFS’s complaint, filed in the U.S. District Court for the Southern District of New York, alleges that the OCC’s charter would include “vast preemptive powers over state law.” Specific concerns include the risk of (i) weakened regulatory controls on usury, payday loans, and other predatory lending practices; (ii) consolidation of multiple non-depository business lines under a single federal charter, thus creating more “too big to fail” institutions; and (iii) creating competitive advantages for large, well-capitalized fintech firms that could overwhelm smaller market players and thus restrict innovation in financial products and services. The complaint also asserts that the “OCC’s action is legally indefensible because it grossly exceeds the agency’s statutory authority.” Finally, the complaint claims that the proposed fintech charter would injure NYDFS monetarily because the regulator’s operating expenses are funded by assessments levied by the OCC on New York licensed financial institutions. According to NYDFS, every non-depository financial firm that receives a special purpose fintech charter from the OCC in place of a New York license deprives NYDFS of crucial resources that are necessary to fund its regulatory function.
Citing violations of the National Bank Act and conflicts with state law in violation of the Tenth Amendment of the U.S. Constitution, NYDFS seeks declaratory and injunctive relief that would declare the fintech charter proposal to be unlawful and prohibit the OCC from taking further steps toward creating or issuing the charter without express Congressional authority.
In a press release issued the same day, the CSBS said it “strongly supports the [NYDFS] lawsuit” and reiterated that the OCC “does not have the authority to issue federal charters to non-banks, and its unlawful attempt to do so will harm markets, innovation and consumers.”