The Conference of State Bank Supervisors (CSBS) has withdrawn its lawsuit filed in D.C. federal district court in December 2020 seeking to block the OCC from granting a national bank charter to Figure Technologies Inc. The lawsuit represented the CSBS’s third challenge to the OCC’s authority to issue special purpose national bank (SPNB) charters to non-depository fintech companies or to uninsured deposit-taking fintechs. The first two lawsuits were dismissed on ripeness grounds.
In its press release announcing the withdrawal, the OCC stated that in December 2021, Figure Technologies amended its charter application for Figure Bank, National Association, to offer FDIC-insured deposit accounts. The OCC indicated that in connection with this amendment, the bank organizers will apply to the FDIC for deposit insurance, and Figure Technologies, Inc. will apply for approval from the Federal Reserve Board to become a bank holding company under Section 3 of the Bank Holding Company Act.
In June 2021, the lawsuit was stayed in response to an unopposed stay motion filed by the CSBS that referenced Acting Comptroller Hsu’s May 2021 testimony to the House Financial Services Committee indicating that the OCC was reviewing its framework for chartering national banks. The stay motion followed the OCC’s filing of a motion to dismiss the lawsuit in which, in addition to challenging the CSBS’s standing, the OCC argued that the National Bank Act (NBA) gives it authority to issue SPNB charters to non-depository companies and that it has authority to reasonably interpret the NBA to determine that a national bank is not required to obtain deposit insurance to lawfully commence “the business of banking.”
In its press release, the OCC indicated that although it continues to “maintain that it has the authority to charter an uninsured institution, including one that takes deposits…Figure Technologies’ decision to amend the application and seek a full service charter rendered the lawsuit moot.” The press release also included the following statement from Acting Comptroller Hsu:
I am pleased that the OCC can now consider Figure’s application without the cloud of a lawsuit. The amendments to Figure’s banking applications, if approved, will help ensure that the innovative activities engaged in by the bank are done in a safe, sound, and responsible manner, on a level playing field and fully within the bank regulatory perimeter. There needs to be less regulatory competition and more coordination. We must modernize the regulatory perimeter as a prerequisite to conducting business as usual with firms interested in novel activities. Modernizing the bank regulatory perimeter cannot be accomplished by simply defining the activities that constitute ‘doing banking,’ but will also require determining what is acceptable activity to be conducted in a bank. Consolidated supervision will help ensure risks do not build outside of the sight and reach of federal regulators.
The question of what activities constitute the “business of banking” is addressed by 12 C.F.R. § 5.20(e)(1). Section 5.20(e)(1) provides in part:
The OCC charters a national bank under the authority of the National Bank Act of 1864, as amended, 12 U.S.C. 1 et seq. The bank may be a special purpose bank that limits its activities to fiduciary activities or to any other activities within the business of banking. A special purpose bank that conducts activities other than fiduciary activities must conduct at least one of the following three core banking functions: Receiving deposits; paying checks; or lending money.
In July 2018, relying on the NBA and Section 5.20(e)(1), the OCC issued a policy statement confirming that it would begin accepting applications for SPNB charters from non-depository fintechs. In addition to the CSBS lawsuits, the policy statement led to the filing of lawsuits by the NYDFS that similarly challenged the OCC’s authority to issue SPNB charters to non-depository fintech companies. Although the NYDFS’s first lawsuit was dismissed for lack of standing, the district court, in the second NYDFS lawsuit, concluded that the term “business of banking” as used in the NBA, “read in the light of its plain language, history, and legislative context, unambiguously requires that, absent a statutory provision to the contrary, only depository institutions are eligible to receive national bank charters.” The OCC appealed that decision to the Second Circuit which reversed the district court and ruled that the complaint should be dismissed because the NYDFS lacked standing and its claims were not constitutionally ripe. As a result, the Second Circuit did not have jurisdiction to reach the district court’s holding, on the merits, of whether the “business of banking” under the NBA requires the receipt of deposits.
The statements in the OCC’s press release are ambiguous. Although the OCC maintains “that it has the authority to charter an uninsured institution,” we fear that the amendment to the Figure Technologies charter application (likely at the behest of the OCC) and the conciliatory statements in the press release about “regulatory competition and more coordination” and “modernizing the regulatory perimeter” with “[c]onsolidated supervision” reflects a retreat by the OCC and a decision, at least under the current the Acting Comptroller, to shut the OCC’s doors to charter applications from non-depository fintechs.