Attorneys for defendants, U.S. Comptroller and the Office of the Comptroller of the Currency (together “the OCC”), in the pending Southern District of New York lawsuit, Vullo v. OCC, submitted a letter to the court announcing their intent to move to dismiss the complaint brought by New York’s Superintendent of the Department of Financial Services (“DFS”). This is the second lawsuit brought by Superintendent Vullo against the OCC and mirrors the litigation being pursued by the Conference of State Bank Supervisors (CSBS) in the District of Columbia. DFS’s lawsuit alleges that the OCC’s decision to accept applications for “Special Purpose National Bank Charters” (or “fintech charters”) from non-fiduciary institutions that do not accept deposits exceeds the OCC’s authority under the National Banking Act (“NBA”) and would violate the Tenth Amendment by removing such institutions from state regulatory oversight. The first lawsuit, Vullo v. OCC et al. (“Vullo I”), was dismissed without prejudice last December when Southern District of New York Judge Buchwald ruled that DFS lacked standing to assert its claims, which were unripe for judicial determination.

In its letter, the OCC announced its intention to file a motion to dismiss the latest DFS complaint on substantially identical grounds to those it advanced in Vullo I. The OCC intends to argue that: (1) DFS lacks sanding to bring these claims as it has not suffered an injury in fact; (2) the OCC interpretation of the ambiguous term “business of banking” in the NBA is reasonable, and the OCC therefore has authority under the NBA to issue fintech charters; (3) DFS’s challenge is barred by the applicable statute of limitations; and (4) the OCC’s decision to issue fintech charters would not violate the Tenth Amendment because of the Supremacy Clause and the authority granted to the OCC by the NBA. While DFS had tried to cure its standing issues in the most recent complaint by emphasizing the OCC’s decision to issue fintech charters was the “agency’s final decision,” the OCC has signaled in its letter that it believes the DFS complaint remains premature. The OCC’s letter emphasizes that while “it will accept applications for fintech charters, [the agency] has not actually received any such applications, let alone granted one.” Accordingly, the OCC will argue that any harm DFS describes in its complaint or in its response to the motion to dismiss remains “future-oriented and speculative.”

DFS filed its own letter in response, announcing not only DFS’s strategy for overcoming the OCC’s anticipated motion to dismiss, but also its intent to file a motion for preliminary injunction in order to prevent the OCC from issuing any fintech charters while the lawsuit is pending. DFS focused on the reasoning of Judge Buchwald’s Vullo I opinion and highlighted several subsequent changes to the regulatory landscape that should change the result. In particular, DFS noted that at the time Judge Buchwald found DFS’s claims unripe: (1) the OCC had not yet announced its intent to accept applications from non-depository institutions; (2) the relevant supplement to the OCC licensing manual was still in “draft” form; and (3) the Comptroller at the time was a nominee who had made no public statements regarding whether to offer charters to non-depository institutions. In contrast, presently the OCC has announced that it is accepting fintech charter applications, the manual detailing procedures for the process has been finalized, and the then-nominee-now-Comptroller has made several public statements regarding the OCC’s intent to issue fintech charters. DFS will argue that, based on these changes to the facts underpinning Judge Buchwald’s determination, DFS now has standing to make its claims against the OCC.

DFS also strongly implied that the OCC had been less-than-forthright with the court in its letter when the OCC stated that DFS lacked standing (in part) because the OCC had not actually received, much less granted, any applications for fintech charters. DFS cited to reports that the OCC has already singled-out the first entity to receive a fintech charter, and characterized the OCC’s representation to the Court that no fintech charters were currently being considered as “brutishly inconsistent” and duplicitous.

Regarding the merits of the claims (on which DFS will have to prove a substantial likelihood of success if it does indeed seek a preliminary injunction), DFS signaled in its letter that it intends to focus primarily on the history of the NBA, the OCC’s traditional deference to congressional authority when regulating non-depository institutions, and the degree to which the OCC’s actions in the realm of offering fintech charters has no precedent. In emphasizing the need for a preliminary injunction, DFS characterized the OCC’s “unprecedented issuance” of fintech charters as “destructive to New York and New Yorkers” insofar as it would preempt state laws that “powerfully protect” consumers from the industry’s “well-known abuses.”

The OCC anticipates filing its motion to dismiss in early December, though the court has neither ruled on the parties’ jointly proposed briefing schedule, nor DFS’s request for a pre-motion conference or briefing schedule on the motion for preliminary injunction.

While the OCC’s position that the DFS lawsuit is not yet ripe for adjudication because the OCC has not yet approved a fintech charter may have some merit, it is important to the industry that the legal question of the OCC’s authority to issue such a charter get resolved expeditiously. Until that happens, there is likely to be limited interest on the part of the industry in pursuing such a charter.

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.