On May 2, 2019, the U.S. District Court for the Southern District of New York denied the Office of the Comptroller of the Currency’s (OCC) motion to dismiss a complaint brought against it by the Maria T. Vullo, superintendent of the New York State Department of Financial Services (DFS).  The complaint had challenged the OCC’s authority to provide its special-purpose charter to fintech companies under the National Bank Act (NBA).  Click here and here for our prior coverage on this lawsuit.

In the long awaited ruling, the court focused on the dual-banking system, in which state and national banks are chartered and regulated at different levels, to find that DFS properly demonstrated a “substantial risk that harm will occur,” to establish Article III standing. The court reasoned that since New York already provides a comprehensive regulatory system for nearly 600 non-depository fintechs, those regulations “are all at risk of becoming null and void,” by the OCC’s special-purpose charter.  Judge Marrero noted that fintechs may leave New York altogether, which will force DFS to incur costs now to avoid such harm.  According the court, the OCC focused exclusively on constitutional ripeness and did not address some the arguments presented by DFS concerning harm to its sovereignty and state interests. On this basis, the court found that DFS established standing to pursue its statutory and constitutional challenges against the OCC.

The court also disagreed with the OCC’s arguments that the claims are untimely.  The court focused on the ‘reopening doctrine,’ a long-standing principle permitting a court to review recent regulatory action based on prior agency interpretations.  The court noted that this doctrine “likely defeats [the] OCC’s statute of limitations defense,” and focused on the OCC’s failure to respond to the DFS’s arguments about the application of the doctrine.  On this basis, the court held the OCC did not meet its burden proof to assert the affirmative defense of timeliness, but expressly noted that the OCC may re-raise this defense later in the proceedings.

In addressing whether DFS can state a claim, the court held that the term “business of banking,” contrary to the OCC’s interpretation, “unambiguously requires receiving deposits[.]” The OCC had argued that the term “business of banking” was ambiguous and a reasonable interpretation would provide the  OCC with chartering authority for nonbanks that do not accept deposits. The court held that the OCC’s reading is “not so much an ‘interpretation’ as ‘a fundamental revision’ of the NBA.” According to the court, the special-purpose charter would enable a “dramatic disruption of federal-state relationships” which “lends weight to the argument” that the OCC’s authority “exceeds what Congress may have contemplated in passing the NBA.” On this basis, the court held that “only depository institutions are eligible to receive national bank charters from [the] OCC,” and denied the OCC’s motion to dismiss with respect to Counts I and II, both of which challenged the OCC’s authority under the NBA.  The court, however, dismissed DFS’s claim for a violation of the Tenth Amendment.