The OCC has filed its opening brief in its appeal to the Second Circuit from the district court’s final judgment in the lawsuit filed by the New York Department of Financial Services (DFS) seeking to block the OCC’s issuance of special purpose national bank (SPNB) charters to non-depository fintech companies.

In May 2019, the district court denied the OCC’s motion to dismiss and found that the term “business of banking” as used in the National Bank Act  (NBA) “unambiguously requires receiving deposits as an aspect of the business.”  Because the district court also ruled that its decision should have nationwide effect regardless of whether the charter applicant has a New York nexus, the OCC could not approve any applications for SPNB charters from non-depository fintech companies regardless of whether the applicant had a New York nexus.  With the OCC’s and DFS’s consent, the district court entered a final judgment against the OCC in October 2019, thereby enabling the OCC to file an appeal.

In its brief, the OCC makes the following principal arguments:

  • DFS lacks standing.  DFS cannot show that it has suffered an “injury in fact” because no actual, imminent injury exists.  DFS’s claims are entirely speculative because they rely on a chain of events that has not occurred and may never occur, namely the OCC’s receipt and approval of an SPNB charter application from a non-depository fintech that intends to conduct business in New York and the commencement of business in New York by such fintech in a manner that causes the harms identified by DFS (such as lost revenues).  Neither can DFS establish standing and constitutional ripeness under the alternative “substantial risk” test because DFS did not allege that it would presently have to incur specific costs to mitigate the alleged harms arising from the OCC’s decision to accept SPNB charter applications from non-depository fintechs.  Even if DFS has standing, the district court should not have reached the merits because DFS’s claims do not satisfy the test for prudential ripeness—they are not fit for judicial consideration and there is no present hardship to DFS from the court withholding a decision on its claims.  With regard to fitness, DFS’s claims are contingent on the chartering of an applicant with a New York nexus.  With regard to hardship, instead of alleged injuries that arise solely from the OCC’s decision to accept SPNB charter applications from non-depository fintechs, DFS has only alleged injuries that flow from a fintech conducting business in New York pursuant to a charter.  Further, as a practical matter, DFS would not be prejudiced by waiting to resolve its claims until the OCC has taken affirmative steps to approve a charter application from a fintech with a New York nexus.  The requirement that charter applicants give public notice of their applications at the time of filing coupled with the time period between the OCC’s preliminary approval of an application and final approval would give DFS ample opportunity to then challenge the application.
  • OCC’s decision to accept SPNB applications from non-depository fintechs is reasonable and entitled to Chevron deference.  The NBA’s language is ambiguous as to whether deposit-taking is a necessary component of the “business of banking” and the NBA’s legislative history does not support a finding that deposit-taking is necessary.  Also, the existence of flexibility in the phrase “business of banking” is demonstrated by the fact that what activities constitute the “business of banking” has evolved over time in response to developments in business practices and consumer needs.  The OCC’s interpretation in 12 C.F.R. § 5.20(e)(1) of the NBA’s ambiguous language is reasonable because it is consistent with NBA provisions identifying core banking functions as interpreted in U.S. Supreme Court decisions and does not conflict with other federal banking regulations.  As a result, it is entitled to deference.
  • DFS was not entitled to nationwide relief.  Nationwide relief is incompatible with Article III of the U.S. Constitution.  A court only has power under Article III to provide a remedy that is tailored to redress the plaintiff’s injury.  DFS’s alleged injuries, and any remedies to which it is entitled, are limited to New York.  Similarly, traditional equitable principles provide that remedies should not extend beyond what is necessary to redress a plaintiff’s alleged injuries.  While the Administrative Procedure Act provides that unlawful, arbitrary, or capricious agency action should be “set aside,” the APA does not mandate that agency action should be set aside globally rather than as applied to the particular plaintiff who brought the lawsuit.  In addition, the district court’s entry of nationwide relief prevents other courts from considering the issue.

We find it a bit puzzling why the OCC has devoted so much attention to the standing argument.  Given that the district court’s decision, unless reversed, would continue to be a cloud that deters the filing of SPNB charter applications, it would seem to be in the interest of all concerned for the Second Circuit to issue a decision that resolves the issue on the merits.