The Conference of State Bank Supervisors has filed a complaint in D.C. federal district court to stop the Office of the Comptroller of the Currency (OCC) from implementing its proposal to issue special purpose national bank (SPNB) charters to fintech companies.

In comments filed on the OCC’s proposal, the CSBS and others asserted that the proposal would allow fintech companies to avoid state consumer protection laws and make it more difficult for states to enforce such laws by removing their visitorial oversight.  Commenters also asserted that the OCC lacks authority to charter SPNBs that do not take FDIC-insured deposits, citing its authority under 12 C.F.R. Section 5.20(e)(1) to charter a bank that performs a single core banking function—receiving deposits, paying checks, or lending money.

The lawsuit follows the OCC’s publication of a summary of the comments it received on its proposal in which it disagreed with commenters’ concerns regarding state consumer protection laws and the OCC’s authority.  The grounds on which the CSBS challenges the OCC’s proposal in the lawsuit include the following:

  • Both Section 5.20(e)(1)  and the OCC’s decision to issue SPNB charters to fintech companies are inconsistent with the National Bank Act because the NBA does not allow the OCC to charter entities that do not receive deposits unless they are carrying on a special purpose expressly authorized by Congress.
  • The OCC’s decision to issue SPNB charters to fintech companies is a “rule” that was made without compliance with the Administrative Procedure Act and is an arbitrary and capricious action that does not constitute “reasoned decision making” as required by the APA.
  • The OCC’s decision to issue SPNB charters to fintech companies, by enabling nonbank charter holders to disregard state law, violates the Tenth Amendment of the U.S. Constitution under which states retain the powers not delegated to the federal government, including the police powers necessary to regulate nonbank  providers of financial services and protect consumers and the public interest from unsound and abusive financial practices.

The relief sought by the CSBS includes a declaration that the OCC lacks authority under the NBA to create and issue SPNB charters to fintech companies that do not take deposits or to issue Section 5.20(e)(1) and an injunction prohibiting the OCC from creating or issuing any SPNBs pursuant to Section 5.20(e)(1).

When it issued the summary of comments on its proposal, the OCC also issued a draft supplement to its Licensing Manual to describe the licensing process it envisions for fintech companies seeking an SPNB charter.  However, it has not yet issued a final supplement or indicated that companies can begin submitting charter applications.  (The OCC invited comments to be filed on the draft supplement by April 14, 2017.)  As a result, CSBS is likely to face a motion to dismiss on grounds that include a lack of ripeness and/or no case or controversy.