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  • OCC defends fintech charter authority in NYDFS challenge

    Courts

    On August 13, the OCC filed its reply brief in its appeal of a district court’s 2019 final judgment, which set aside the OCC’s regulation that would allow non-depository fintech companies to apply for Special Purpose National Bank charters (SPNB charter). As previously covered by InfoBytes, last October, the U.S. District Court for the Southern District of New York entered final judgment in favor of NYDFS, ruling that the SPNB regulation should be “set aside with respect to all fintech applicants seeking a national bank charter that do not accept deposits,” rather than only those that have a nexus to New York State. 

    As discussed in its opening brief filed in April appealing the final judgment (covered by InfoBytes here), the OCC reiterated that the case is not justiciable until it actually grants a fintech charter, that it is entitled to deference for its interpretation of the term “business of banking,” and that the court should set aside the regulation only with respect to non-depository fintech applicants with a nexus to New York. Following NYDFS’s opening brief filed last month (covered by InfoBytes here), the OCC argued, among other things, that the case is not ripe and NYDFS lacks standing because its alleged injuries are speculative and “rely on a series of events that have not occurred: OCC receiving and approving an SPNB charter application from a non-depository fintech that intends to conduct business in New York, and then does so in a manner that causes the harms [NYDFS] identifies.”

    The OCC further argued that NYDFS “cannot show the statutory term ‘business of banking’ is unambiguous, or that it requires a bank to accept deposits to receive an OCC charter.” Highlighting the evolution of the “business of banking” over the last 160 years, the OCC contended that the National Bank Act does not contain a requirement “that an applicant for a national bank charter accept deposits if it can present the OCC with a viable business model that does not require it,” and that its regulation interpreting the ambiguous phrase “business of banking” is reasonable as it is consistent with U.S. Supreme Court case law. Lastly, the OCC argued that NYDFS’s claim that it is entitled to nationwide relief afforded under the Administrative Procedure Act (APA) is inconsistent with another 2nd Circuit decision, “as well as principles of equity and the APA’s text and history.” The OCC stated that even if the appellate court were to conclude that NYDFS’s claims are justiciable, the regulations should be set aside only with respect to non-depository fintech applicants with a nexus to New York.

    Courts Appellate Second Circuit Fintech Charter OCC NYDFS National Bank Act

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  • NYDFS counters OCC’s arguments in fintech charter challenge appeal

    Courts

    On July 23, NYDFS filed its opening brief in the appeal of its challenge to the OCC’s decision to allow non-depository fintech companies to apply for Special Purpose National Bank charters (SPNB charter). The OCC filed its opening brief with the U.S Court of Appeals for the Second Circuit in April (covered by InfoBytes here), appealing the district court’s final judgment in favor of NYDFS, which ruled that the SPNB regulation should be “set aside with respect to all fintech applicants seeking a national bank charter that do not accept deposits,” rather than only those that have a nexus to New York State.

    In its brief, NYDFS argued that the district court was “correct to hold that the OCC had exceeded its statutory authority. . .in deciding to issue federal bank charters to nondepository fintech companies.” In response to the OCC’s arguments that NYDFS lacked standing and that the claims were not ripe, NYDFS first stated that “standing and ripeness exist not only when injury has already occurred, but also when it is imminent or when there is a substantial risk of harm.” Specifically, NYDFS asserted that its claims are ripe because (i) the OCC has actively solicited charter applications from the fintech industry and has indicated that companies had started the application process; and (ii) “one of the OCC’s stated objectives in the Fintech Charter Decision is to allow fintech companies that receive [an SPNB charter] to escape state regulation.” NYDFS also argued that because nondepository institutions are not engaged in the “business of banking” within the meaning of the National Bank Act (NBA), they cannot receive federal bank charters. Moreover, it contended that “when Congress did intend to extend OCC’s regulatory jurisdiction over such institutions, it expressly amended the NBA to do so.” Among other arguments, NYDFS claimed it is entitled to nationwide relief, stating that the district court merely granted the relief afforded under the Administrative Procedure Act, which specifies that the proper remedy for when an agency’s actions are contrary to law and “‘in excess of statutory jurisdiction, authority, or limitations” is to set aside the regulation.

    Additionally, several parties, including the Conference of State Bank Supervisors and the Independent Community Bankers of America, filed separate amicus briefs (see here and here) in support of NYDFS, arguing that the OCC lacks the authority to grant SPNB charters.

    Courts NYDFS OCC Appellate Second Circuit Fintech Charter State Issues

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  • Acting Comptroller Brooks will focus on responsible innovation, fintech charters

    Federal Issues

    On May 29, Acting Comptroller of the Currency Brian P. Brooks issued a statement focusing on four priorities intended to help meet the challenges facing banks today. As previously covered by InfoBytes, Brooks was named Acting Comptroller following the departure of former Comptroller Joseph Otting. These priorities include building upon responsible innovation to provide regulatory certainty, flexible frameworks, and oversight that will allow banks to “evolve and capitalize on technology and innovation to deliver better products and services, to operate more efficiently, and to reduce risk in the system.” Brooks reiterated that the OCC has the authority to issue bank charters to companies engaged in “the business of banking on a national scale, including taking deposits, lending money, or paying checks,” and emphasized that the OCC will work to “clarify what true lender means, to underscore that the terms of a lawfully made contract remain valid for the duration of that contract even if it is sold by a bank to another investor, and to specify what the parameters of the ‘fintech charter’ and other special purpose charters should be.” The same day the OCC issued a final rule (covered by a Buckley Special Alert), which establishes that when a bank transfers a loan, the interest rate permissible before the transfer will still be valid after the transfer.

    Among other topics, Brook also discussed the OCC’s recent issuance of a final rule to strengthen the Community Reinvestment Act (covered by a Buckley Special Alert), stating that the OCC will work to ensure that banks provide “fair access” to all customers and stressing that the agency “should not tolerate lawful entities being denied access to our federal banking system based on their popularity among a powerful few.”

    Federal Issues OCC Fintech Charter Madden CRA Interest Rate

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  • OCC appeals judgment in NYDFS fintech charter challenge

    Courts

    On April 23, the OCC filed its opening brief in the U.S. Court of Appeals for the Second Circuit to appeal a district court’s final judgment in an NYDFS lawsuit that challenged the agency’s decision to allow non-depository fintech companies to apply for Special Purpose National Bank charters (SPNB charter). As previously covered by InfoBytes, last October the district court entered final judgment in favor of NYDFS, ruling that the SPNB regulation should be “set aside with respect to all fintech applicants seeking a national bank charter that do not accept deposits,” rather than only those that have a nexus to New York State. The judgment followed the court’s denial of the OCC’s motion to dismiss last May (covered by InfoBytes here), in which the court concluded, among other things, that the OCC failed to rebut NYDFS’s claims that the proposed national fintech charter posed a threat to the state’s ability to establish its own laws and regulations, and that engaging in the “business of banking” under the National Bank Act (NBA) “unambiguously requires receiving deposits as an aspect of the business.” Highlights of the OCC’s appeal include:

    • The OCC claims that NYDFS lacks standing and that its claims are unripe because its alleged injuries are premised on a non-depository fintech company receiving a SPNB charter and commencing business in the state. However, the OCC has yet to receive even an application. The OCC also argues that NYDFS “would not be prejudiced by waiting to resolve these claims until OCC takes affirmative steps to approve an application” because the period between preliminary conditional approval and final approval would provide “ample opportunity to challenge such an application.”
    • The OCC argues that the district court erred in holding that the agency’s decision to accept SPNB charter applications from non-depository fintechs was not entitled to Chevron deference. Specifically, the term “business of banking” under the NBA is “ambiguous” on whether it requires deposit-taking, and the OCC’s resolution of that ambiguity is reasonable as it is consistent with U.S. Supreme Court case law.
    • The OCC argues that even if NYDFS’s claims were justiciable (and even if the OCC’s interpretation was not entitled to Chevron deference), any relief NYDFS is entitled to receive must be limited to the state. The OCC contends that the district court’s decision to grant nationwide relief was improper because it is inconsistent with Article III, which establishes that “remedies should not extend beyond what is necessary to redress the plaintiff’s alleged injuries,” as well as equitable principles and the Administrative Procedure Act.

    Courts OCC Appellate Second Circuit NYDFS Fintech Charter Fintech

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  • District Court enters final judgment: Only depository institutions can receive OCC fintech charter

    Courts

    On October 21, the U.S. District Court for the Southern District of New York entered a final judgment in NYDFS’s lawsuit against the OCC challenging the agency’s Special Purpose National Bank Charter (SPNB), concluding that the regulation should be “set aside with respect to all fintech applicants seeking a national bank charter that do not accept deposits.” As previously covered by InfoBytes, in May the district court denied the OCC’s motion to dismiss the complaint by NYDFS, which argued that the agency’s decision to allow fintech companies to apply for a SPNB is a move that will destabilize financial markets more effectively regulated by the state. The court stated that because the OCC failed to rebut NYDFS’s claims that the proposed national fintech charter posed a threat to the state’s ability to establish its own laws and regulations, the challenge “is ripe for adjudication.” After the May decision, the OCC informed the court that it would be seeking final judgment in the case, and on October 7, each party submitted proposed final orders (available here and here). The proposals were “nearly identical,” according to the court, as both (i) “direct the Clerk of Court to enter final judgment in favor of plaintiff [NYDFS] and close the case,” and (ii) “provide that each party shall bear its own fees and costs.” However, NYDFS proposed “that the regulation be ‘set aside with respect to all fintech applicants seeking a national bank charter that do not accept deposits,’” while the OCC suggested the regulation only be set aside “‘with respect to all fintech applicants seeking a national bank charter that do not accept deposits, and that have a nexus to New York State…in a manner that would subject them to regulation by [NYDFS].’” The court agreed with NYDFS, concluding that the OCC “failed to identify a persuasive reason to deviate from ordinary administrative law procedure,” which requires “vacatur” of the regulation.  

    Courts Fintech OCC NYDFS Fintech Charter State Issues National Bank Act Preemption

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  • District Court again dismisses CSBS suit over OCC fintech charter

    Courts

    On September 3, the U.S. District Court for the District of Columbia again dismissed the Conference of State Bank Supervisors’ (CSBS) lawsuit against the OCC over its decision to allow non-bank institutions, including fintech companies, to apply for a Special Purpose National Bank Charter (SPNB). As previously covered by InfoBytes, the court dismissed the original complaint in April 2018 on standing and ripeness grounds. Then, after the OCC announced last July that it would welcome non-depository fintech companies engaging in one or more core-banking functions to apply for a SPNB, CSBS renewed its legal challenge. (See previous InfoBytes coverage here.) In dismissing the case again, the court held that CSBS “continues to lack standing and its claims remain unripe,” adding that “not much has happened since [the original dismissal] that affects the jurisdiction analysis.” Specifically, the court noted its previous holding that CSBS’s alleged harms was “contingent on whether the OCC charters a [f]intech,” but CSBS “does not allege that any [fintech company] has applied for a charter, let alone that the OCC has chartered a [f]intech.” In addition, the court reiterated its prior conclusion that the dispute remains “neither constitutionally nor prudentially ripe for determination.”

    The court further acknowledged a contrasting decision issued in May by the U.S. District for the Southern District of New York allowing a similar challenge filed by NYDFS to survive (previous InfoBytes coverage here), stating that it “respectfully disagrees” with that court’s decision “to the extent that its reasoning conflicts” with either of the dismissal decisions in the CSBS cases. Finally, the court denied CSBS’s request for jurisdictional discovery because it will lack jurisdiction “at least until a [f]intech applies for a charter,” which will be publicly disclosed.

    Courts OCC Fintech Fintech Charter CSBS

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  • OCC wants final judgment in NYDFS fintech charter challenge

    Courts

    On May 30, the OCC filed a letter with the U.S. District Court for the Southern District of New York notifying the court that it intends to work with NYDFS to issue a proposed final order to the court in the action challenging the OCC’s decision to allow fintech companies to apply for a Special Purpose National Bank Charter (SPNB). As previously covered by InfoBytes, in May, the court denied the OCC’s motion to dismiss, concluding that, among other things, the OCC failed to rebut NYDFS’s claims that the proposed national fintech charter posed a threat to the state’s ability to establish its own laws and regulations, and therefore, the challenge “is ripe for adjudication.” In its letter, the OCC states that while it “disagrees with the Court’s decision, and reserves its right to appeal, it believes that the decision renders entry of final judgment in this matter appropriate.” An entry of final judgment, would allow the OCC to challenge the decision with the U.S. Court of Appeals for the 2nd Circuit.

    Courts Fintech NYDFS OCC Fintech Charter National Bank Act State Issues Preemption

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  • NYDFS fintech charter lawsuit survives challenge

    Courts

    On May 2, the U.S. District Court for the Southern District of New York denied the OCC’s motion to dismiss a complaint filed by NYDFS arguing that the agency’s decision to allow fintech companies to apply for a Special Purpose National Bank Charter (SPNB) is a move that will destabilize financial markets more effectively regulated by the state. (See previous InfoBytes coverage here.) The court, however, stated that because the OCC failed to rebut NYDFS’s claims that the proposed national fintech charter posed a threat to the state’s ability to establish its own laws and regulations, the challenge “is ripe for adjudication.” Specifically, NYDFS alleged that granting a national charter to fintech firms would limit its ability to regulate non-depository institutions and could potentially lead to a loss in revenue derived from assessments levied against state licensed institutions. The court rejected the OCC’s preemption arguments, writing that the “threats to New York's sovereignty are so clear that the OCC does not even mention, let alone contest, the state's interests. Instead, OCC focuses exclusively on constitutional and prudential ripeness.” The court further dismissed the OCC’s ripeness argument that it has yet to receive, review, or approve a SPNB application, and referred to NYDFS’ allegations that the OCC has “invited fintech companies . . . to discuss SPNB charters,” which potentially demonstrates “at least some demand for, and interest in, such charters.” While the court concedes that the potential for fintech companies to “flout” New York's laws would only occur once a fintech company has applied and been granted a SPNB charter, “those steps do not stymie [NYDFS’s] standing.”

    In addressing NYDFS’s Administrative Procedures Act claim, the court found, among other things, that engaging in the “business of banking” under the National Bank Act (NBA) “unambiguously requires receiving deposits as an aspect of the business.” Furthermore, the court concluded that “absent a statutory provision to the contrary, only depository institutions are eligible to receive [a SPNB] from [the] OCC.” However, the court dismissed NYDFS’s claims that a SPNB charter conflicts with state law in violation of the Tenth Amendment of the U.S. Constitution. According to the court, while NYDFS has standing to raise a Tenth Amendment claim, it has failed to state such a claim “because federal law preempts state law only when ‘Congress has clearly expressed its intent,’” and in this instance, “the operative question is not whether the federal government has the power to take the action challenged in this case, but whether Congress has, in fact exercised that power.”

    Courts Fintech NYDFS OCC Fintech Charter National Bank Act State Issues Preemption

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  • CSBS files lawsuit over OCC’s fintech charter decision, arguing agency exceeds it authority under the National Bank Act

    Fintech

    On October 25, the Conference of State Bank Supervisors (CSBS) filed a lawsuit against the OCC arguing that the agency exceeded its authority under the National Bank Act (NBA) and other federal banking laws when it allowed non-bank institutions, including fintech companies, to apply for a Special Purpose National Bank Charter (SPNB). As previously covered by InfoBytes, the U.S. District Court for the District of Columbia dismissed CSBS’s challenge last April on ripeness grounds because the OCC had not yet issued a fintech charter to any firm. But CSBS renewed its challenge in light of the OCC’s July announcement welcoming non-depository fintech companies engaging in one or more core-banking functions to apply for a SPNB (previously covered by Buckley Sandler Special Alert here), and statements indicating the OCC is currently vetting several companies and expects to make charter decisions mid-2019.

    Among other things, the complaint argues that the SPNB program (i) exceeds the OCC’s statutory authority because the OCC may not “redefine the business of banking” to include non-depository institutions; (ii) is “arbitrary, capricious, and an abuse of discretion” because it inadequately addresses, without explanation, “the myriad policy implications and concerns raised by the public” and the “cost-benefit” tradeoffs; (iii) did not include the proper notice and comment period for preemption interpretations under the NBA; and (iv) is an improper invasion of “state sovereign interests.”

    Fintech Courts OCC CSBS Fintech Charter National Bank Act

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  • NYDFS files lawsuit over OCC’s fintech charter decision

    Fintech

    On September 14, New York Department of Financial Services (NYDFS) Superintendent, Maria T. Vullo, filed a lawsuit against the OCC arguing that the agency’s decision to allow fintech companies to apply for a Special Purpose National Bank Charter (SPNB) is a “lawless” and “ill-conceived” move that will destabilize financial markets more effectively regulated by the state. As previously covered in InfoBytes, last December the U.S. District Court for the Southern District of New York dismissed NYDFS’ previous challenge because the court lacked subject matter jurisdiction over NYDFS’ claims since the OCC had yet to finalize its plans to actually issue SPNBs. However, in light of the OCC’s July announcement welcoming nondepository fintech companies engaged in one or more core banking functions to apply for a SPNB (previously covered by Buckley Sandler Special Alert here), Superintendent Vullo once again issued a challenge to the OCC’s decision, arguing that it is unlawful and grants federal preemptive powers over state law. Among other things, NYDFS requests the court to (i) declare that the OCC’s decision to grant SPNBs exceeds its statutory authority under the National Bank Act, and specifically that the decision improperly defines the “‘business of banking’ to include non-depository institutions,” and (ii) enjoin the OCC “from taking further actions to implement its provisions.”

    Fintech Courts NYDFS OCC State Issues Fintech Charter

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