As expected, the OCC filed a motion to dismiss the second lawsuit filed by the New York Department of Financial Services (DFS) in a New York federal district court to block the OCC’s issuance of special purpose national bank (SPNB) charters to fintech companies.  The OCC also filed a reply brief in support of its motion to dismiss the second lawsuit filed by the Conference of State Bank Supervisors (CSBS) in a D.C. federal district court to stop the OCC from issuing SPNB charters and CSBS filed a reply brief in support of its alternative motion for leave to conduct jurisdictional discovery.

DFS Lawsuit.  The OCC’s motion to dismiss the DFS lawsuit essentially replicates its motion to dismiss the CSBS lawsuit.  In addition to arguing that DFS’s complaint fails to state a claim because the OCC’s interpretation of the term “business of banking” in the National Bank Act is entitled to deference, the OCC argues that the court lacks subject matter jurisdiction over DFS’s claims because:

  • DFS cannot have standing to sue until the OCC approves an application for an SPNB charter because only then could DFS suffer an injury in fact.
  • Because the OCC has not “even received [an application for an SPNB charter], let alone granted a charter,” the matter is not ripe for judicial review.

CSBS Lawsuit.  In its reply brief in support of its motion to dismiss CSBS’s lawsuit, the OCC reinforces the arguments made in its motion to dismiss regarding lack of standing and ripeness and the reasonable of its interpretation of “business of banking.”  CSBS, in its reply brief in support of its motion for alternative discovery, renews its arguments that the discovery it seeks will establish future injury under the “impending injury and “substantial risk” tests “by showing exactly where the OCC stands on the path towards issuing a charter (to the extent the Court has any doubts.)”

CSBS had asked the court to allow it “to conduct jurisdictional discovery because it will allow CSBS to supplement its jurisdictional allegations to establish standing and ripeness—specifically, to resolve factual disputes concerning the status of OCC’s implementation of the [SBNB charter] Program (to the extent the Court finds the current allegations insufficient.)”  In opposing the motion, the OCC argued that such discovery was unnecessary because CSBS cannot establish that any of its members have suffered an injury until an SPNB charter is finally approved and whether a charter application has been filed or a charter has been granted is a matter of public record.  In its reply brief, CSBS calls the OCC’s position “entirely wrong,” asserting that “to the extent that the Court has any reservations about CSBS’s showing, discovery will reveal exactly how close OCC is to [the point of deciding to grant a charter to a particular fintech company], if it has not already reached it.”

The OCC had also argued that the discovery sought by CSBS would chill companies interested in an SPNB charter from pursuing discussions with the OCC.  CSBS calls these concerns “wild speculation” and asserts that even if they deserve attention, “they would only be enough to support a protective order or alternative procedure, not outright denial of discovery.”  CSBS further states that “it certainly would be willing to work with the OCC (like any party to a discovery dispute) to identity methods to address any of OCC’s more precisely articulated and justified concerns—for example by potentially accepting anonymized data, redacted versions of documents, summary data or, in extreme cases, information marked attorneys’ eyes only.”

 

New York Governor Andrew Cuomo has nominated Linda Lacewell to become Superintendent of the state’s Department of Financial Services.  Ms. Lacewell would replace Maria Vullo who announced last month that she will leave DFS on February 1.

Ms. Lacewell most recently served as Governor Cuomo’s Chief of Staff.  She previously served as executive director of a cancer foundation initiative in California and as Governor Cuomo’s Chief Risk Officer.  Before working in state government, Ms. Lacewell worked for a decade as a federal prosecutor in the Office of the U.S. Attorney for the Eastern District of New York.

Last September, Ms. Vullo filed a second lawsuit in a New York federal district court to stop the Office of the Comptroller of the Currency from issuing special purpose national bank charters to fintech companies.  It has been suggested that Ms. Lacewell might take a more friendly view of fintech because of her prior involvement with OpenNY, an open data initiative.

Ms. Lacewell’s nomination must be approved by the New York Senate.

 

 

Maria Vullo, the current Superintendent of the New York Department of Financial Services, has announced that she will leave DFS on February 1, 2019.

Ms. Vullo, who has served as Superintendent since 2016, has been an aggressive regulator.  In September 2018, she made a public announcement stating that the DFS intended to pursue what appeared to be a disparate impact theory arising out of indirect auto finance transactions.  Also in September,  Ms. Vullo filed a second lawsuit in a New York federal district court to stop the Office of the Comptroller of the Currency from issuing special purpose national bank charters to fintech companies.

 

 

On September 12th, the Conference of State Bank Supervisors (CSBS) announced that it would again pursue litigation in opposition to the OCC’s recent decision to accept applications from non-depository financial technology firms for a special purpose national bank (SPNB) charter.

While it announced that its Board of Directors had approved renewing litigation against the OCC at an August 28 meeting, the CSBS did not indicate when it plans to file the lawsuit.  The lawsuit would represent the second time that the CSBS has pursued litigation challenging the OCC’s authority to issue a SPNB charter to fintech companies.  On April 30, 2018, a D.C. federal district court dismissed the first lawsuit filed by the CSBS challenging the OCC’s authority to grant SPNB charters on the grounds that the CSBS had failed to establish any injury in fact necessary for Article III standing and that the case was not ripe for judicial review.  In its initial filing, the CSBS argued that the OCC’s 2017 proposal to issue SBNB charters to fintech companies exceeded the authority granted to the OCC by Congress under the National Bank Act (NBA) and other federal banking laws to charter institutions that engage in the “business of banking.”  The CSBS argued that to engage in the “business of banking,” the NBA requires an institution, at a minimum, to receive deposits.

The New York Department of Financial Services (DFS) also previously filed a lawsuit challenging the OCC’s authority to issue SPNB charters.  That lawsuit, which was filed in a New York federal district court, was dismissed in December, 2017 on similar grounds.  While the DFS has not announced whether it will renew its litigation against the OCC, DFS Superintendent Maria Vullo stated in a July 31 press release that “DFS believes that this [OCC] endeavor, which is also wrongly supported by the Treasury Department, is clearly not authorized under the National Bank Act.  As DFS has noted since the OCC’s proposal, a national fintech charter will impose an entirely unjustified federal regulatory scheme on an already fully functional and deeply rooted state regulatory landscape.”

We recently blogged about the announcement by Varo Bank, N.A., a fintech bank, that it had received preliminary approval from the OCC of its application for a full-service national bank charter.  We do not expect the CSBS or the DFS to challenge the preliminary approval since there would not appear to be any basis to challenge the OCC’s authority to issue a full-service national bank charter to Varo assuming it satisfies the standard conditions for obtaining such a charter.

Identical bills have been introduced in the New York Assembly (A08938) and Senate (S07294) that would direct the New York Department of Financial Services (DFS) to issue a report on online lending by July 1, 2018.

The bills are intended to amend legislation signed into law by New York Governor Cuomo on December 29, 2017 (S6593A) that created a seven-person task force to study online lending and issue a report by April 15, 2018 containing specified information.  The task-force members are to consist of three individuals appointed by the Governor, two members appointed by the Temporary President of the Senate, and two members appointed by the Speaker of the Senate.

The bills would eliminate the task force and provide that the report is to be prepared by the DFS “in consultation with stakeholders, including online lenders, consumers and small businesses.”  The information in the DFS report must include the following:

  • An analysis of online lenders presently operating in New York, including “the common means and methods of their operations, and business,” lending practices of the online lending industry, including disclosure practices, interest rates and costs charged, the primary differences between online lending products and services and those offered by traditional lending institutions, the risks and benefits of products offered by online lenders, and the forms of credit that would be available to borrowers in the absence of online lending opportunities;
  • The types and availability of credit products for individuals and businesses;
  • An analysis of  available data regarding complaints, actions and investigations related to online lenders; and
  • A survey of existing state and federal laws and regulations that apply to online lending and the impact of such laws and regulations on consumers and access to online lenders.

 

 

The Office of the Comptroller of the Currency (OCC) has filed a motion to dismiss the lawsuit filed by the New York Department of Financial Services (DFS) challenging the OCC’s authority to grant special purpose national bank (SPNB) charters to nondepository fintech companies.

The DFS lawsuit, which was filed in May 2017 in a New York federal district court, is similar to the lawsuit filed in April 2017 by the Conference of State Bank Supervisors (CSBS) in D.C. federal district court.  Earlier this month, the OCC filed a motion to dismiss the CSBS lawsuit.

The arguments made by the OCC in support of its motion to dismiss the DFS lawsuit track those made in support of its motion to dismiss the CSBS lawsuit.  Most notably, the OCC again makes the central argument that because it has not yet decided whether it will offer SPNB charters to companies that do not take deposits, the DFS complaint should be dismissed for failing to present either a justiciable case or controversy under the U.S. Constitution or a reviewable final agency action under the Administrative Procedure Act.

In remarks given last month, Acting Comptroller Keith Noreika confirmed that the OCC is continuing to consider its SNPB charter proposal despite the departure of the SPNB proposal’s architect, former Comptroller Thomas Curry, who Mr. Noreika replaced.  While indicating that the OCC planned to vigorously defend its authority to grant an SNPB charter to a nondepository company in the DFS and CSBS lawsuits, Mr. Noreika was noncommittal about what the OCC’s ultimate position would be on implementing the proposal.  He also suggested that fintech companies consider seeking a national bank charter by using more established OCC authority.

The New York Department of Financial Supervision (DFS) has filed a complaint in a New York 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.  The lawsuit follows the filing of a similar action earlier this month by the Conference of State Bank Supervisors (CSBS) in D.C. federal district court.

Like the CSBS lawsuit, the DFS lawsuit challenges the OCC’s proposal on the grounds that:

  • The National Bank Act (NBA) does not allow the OCC to charter non-depository financial services
  • The OCC’s decision to issue SPNB charters to fintech companies, by enabling non-depository 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 power to regulate financial services and products delivered within a state

In defending its authority to charter SPNBs that do not take FDIC-insured deposits, the OCC has relied on 12 C.F.R. Section 5.20(e)(1) which allows the OCC to charter a bank that performs a single core banking function—receiving deposits, paying checks, or lending money.  Similar to the CSBS lawsuit, the relief sought by the DFS lawsuit includes a declaration that the OCC lacks authority under the NBA to issue SPNB charters to fintech companies that do not take deposits, a declaration that 12 C.F.R. Section 5.20(e)(1) is null and void because it exceeds the OCC’s authority under the NBA, and an injunction prohibiting the OCC from issuing SPNB charters as proposed.

We have commented that because the OCC has not yet finalized the licensing process for fintech companies seeking an SPNB charter, the CSBS is likely to face a motion to dismiss on grounds that include a lack of ripeness and/or no case or controversy.  The DFS is likely to also face a motion to dismiss on similar grounds.  Perhaps anticipating an argument that it lacks standing to bring the lawsuit because it cannot show actual harm, DFS alleges not only that the OCC proposal would undermine its ability to protect New York consumers but also that the OCC’s actions will “injure DFS in a directly quantifiable way.”  DFS alleges that because its operating expenses are funded by assessments levied on New York-licensed financial institutions, every company that receives an SPNB charter “in place of a New York license to operate in this state deprives DFS of crucial resources that are necessary to fund the agency’s regulatory function.”

This allegation does not seem sufficient to overcome the lack of ripeness and/or no case or controversy problem that the DFS lawsuit presents.  Indeed, the DFS filed its lawsuit after the architect of the SPNB charter proposal, former Comptroller of the Currency Thomas Curry, was replaced by Acting Comptroller Keith Noreika.  Mr. Noreika has not yet taken any public position with respect to the SPNB charter.  It will not be until the next Comptroller of the Currency is nominated by President Trump, confirmed by the Senate, and takes a position on the SPNB charter that we will be able to realistically assess whether the OCC will continue to pursue the SNPB charter proposal, let alone finalize it.

 

 

 

In May, we wrote that the New York Department of Financial Services (“DFS”) would soon be issuing revised debt collection regulations for debt buyers and third party debt collectors. On July 16, the DFS released the revised proposed regulations.

Among other things, the revised proposed rules would require a debt collector to substantiate not only consumer disputes for defaulted debts, but also charged-off debts. The proposed regulations would also impose additional obstacles on collectors seeking to collect debts barred by the statute of limitations. Specifically, the debt collector, before accepting payment on a time-barred debt, would first have to send the consumer a written notice which explicitly states that “suing on an expired debt is a violation of the Fair Debt Collection Practices Act.” For more on the proposed regulations, see our alert.

The DFS’ laser-like focus on the collection of charged-off and time-barred debts likely has implications for debt collectors nationwide. In April, CFPB General Counsel Meredith Fuchs indicated that time-barred debt is a major focus of the CFPB’s upcoming debt collection rules. Given that the DFS and the CFPB have acknowledged they collaborate closely, it would not be surprising if many aspects of the DFS’ proposed regulations are adopted by the CFPB in its upcoming debt collection rule.