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OCC, New York spar over agency authority to charter fintechs "Credit News 24"

By Richard A. Roth, J.D.

A motion to dismiss by the Office of the Comptroller of the Currency and an opposing memorandum by New York’s Department of Financial Services lay out the two sides’ positions in a suit challenging the OCC’s ability to grant national bank charters to companies that do not accept deposits. In its motion to dismiss Vullo v. OCC, the agency asserts that New York has no current right to try to block the charters and that it has the right to grant them. The state responds that it has standing to sue, its legal challenge is ripe for decision, and the agency is exceeding its authority under the National Bank Act.

The state and the OCC are arguing over whether the OCC can grant national bank charters to fintech companies—broadly, companies that use innovative technology to provide financial products and services to customers. The agency has made clear, through papers, proposals, and speeches by officials, that it believes it has the legal right to issue charters and is considering doing so. As part of its public statements, the OCC also has said that it wants chartered fintech companies to engage in banking activities other than accepting deposits.

New York asserts that the OCC has reached a final decision that it will grant charters. The state also argues that, under the NBA, the OCC can charter institutions only if they engage in the business of banking, and accepting deposits is an essential part of that business. One of the state’s concerns is that the OCC will use fintech national bank charters to preempt state laws governing nondepository financial services companies that traditionally have been under state, not federal, authority.

Final agency action. A threshold question is whether the OCC has taken a final action that is subject to judicial review. What New York characterizes as a decision to grant charters is merely “a collection of non-final policy statements and solicitations for input from the public,” the OCC asserts. The agency says it has not completed its decision-making process, and no legal consequences have resulted from anything it has done. That means there has been no final agency action, so there is nothing to review.

New York makes much of the OCC’s statement in a March 2017 notice that the agency had “reached this decision for a number of reasons.” It had “reached this decision” after publishing a white paper and then reviewing and responding to more than 100 public comments. The fact that the OCC still is soliciting comments on how it will implement its decision to grant charters does not affect that the decision to do so has been reached, the state asserts.

The OCC’s assertion that its interpretation of the NBA is entitled to judicial deference under Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 842 (1984) shows that there are legal consequences that render the agency’s action final, the state adds.

Jurisdictional impediments to suit. The OCC argues that the federal district court does not have the jurisdiction even to consider the merits of the state’s suit. According to the agency, the state has not suffered an injury in fact, the issue is not ripe for judicial consideration, and any challenge to the relevant regulation is time-barred. Unsurprisingly, New York disagrees.

The OCC asserts that any injury the state might suffer is “future-oriented and speculative,” not actual or imminent. There will be no actual harm unless and until a charter actually is granted. This means the state does not have standing to sue, according to the agency.

The state replies that its standing is clear. The New York Department of Financial Services enforces state laws, and the OCC has decided to preempt those laws by granting national bank charters. This diminution of the state’s sovereignty establishes its standing to sue.

Even if New York has an injury in fact, the dispute is not ripe for decision, the OCC also says. The agency claims that it has not yet decided whether to charter fintech companies, and waiting until a decision is made will not cause a hardship for the state. New York counters that the extent of the OCC’s authority is a purely legal question that is “eminently fit for judicial review.”

What is the business of banking? The ultimate issue likely is what activities constitute the business of banking. Generally, the core business of banking is seen as three activities: taking deposits, paying checks (or processing other types of payments), and extending credit. New York views taking deposits as essential, while the OCC does not.

Federal law does not offer a precise definition of “the business of banking.” According to the OCC, that makes the NBA’s use of the phrase ambiguous. Under Chevron, the agency’s reasonable interpretation of the ambiguous phrase is entitled to judicial deference, and the agency’s interpretation is that deposit-taking is not required. Similarly, the agency has a broad authority to grant charters to companies that engage in some, but not all, banking activities. Perhaps performing only one of the core activities would suffice, the OCC’s motion suggests.

In reply, New York argues that the NBA is not ambiguous, at least as far as chartering decisions. The business of banking must include taking deposits. This is demonstrated by the structure of the NBA and by the broader scheme of the federal banking laws. In particular, the state points out, the Bank Holding Company Act defines “bank” in a way that requires the company to accept deposits.

Moreover, even if “business of banking” is ambiguous, the OCC’s interpretation in the contest of chartering is unreasonable, New York asserts.

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