On July 23, 2020, the New York Department of Financial Services (“DFS”) filed its appellate brief asking the Second Circuit Court of Appeals to uphold the lower court’s decision to block the Office of Comptroller of the Currency’s (“OCC”)’s special purpose national bank charter (“fintech charter”).

The DFS initially challenged the OCC’s fintech charter in September 2018 in the Southern District of New York (“SDNY”), weeks after the OCC unveiled the charter for certain non-depository fintech companies under the National Bank Act (“NBA”), allowing them to operate as “special purpose national banks” overseen by the OCC without the burdens of state-by-state regulation and licensing. The DFS argued that the NBA only gives the OCC the authority to provide banking charters to depository institutions, not non-depository institutions, like fintech companies. It is worth nothing that there are some fintech companies that do permit customers to “deposit” funds, so the DFS’s argument here may be over-inclusive. Regardless, the DFS argued that an OCC charter for fintech companies would undermine its authority over the approximately 600 such institutions in New York, shrinking the number of fee-paying companies within its jurisdiction. SDNY Judge Marrero agreed, denying the OCC’s motion to dismiss and entering final judgment in favor of the DFS. The order set aside the OCC’s regulations with respect to any fintech charter applications.

The OCC appealed that decision, and filed its opening appellate brief earlier this year, focusing its argument that the DFS lacks standing because its injuries were only hypothetical as the OCC has not received or taken any steps toward approving a fintech charter application in New York. The OCC also noted that the NBA is ambiguous as to whether the “business-of-banking” requires deposit taking.

In response, the DFS’s appellate brief focuses on the specific nature of the “business-of-banking” within the NBA historically, the OCC’s practice over the years, and the preemptive impact of a broad reading of the OCC’s jurisdiction. The DFS’s brief includes an analysis of the founder’s understanding that banks are depository institutions combined with the OCC’s otherwise limited practice in extending its reach under the NBA. The DFS points out that the OCC fails to invoke a single instance in which a court found an institution that does not take deposits, among its other activities, to be a bank under the NBA’s business-of-banking clause. The DFS further emphasizes the imminent injury to DFS’s regulatory and pecuniary interests if the lower court’s decision were overturned.

SDNY Judge Marrero’s decision and the OCC’s appeal come at a time when other courts have reached different conclusions on the general issue of standing. For instance, Judge Friedrich of the U.S. District Court of the District of Columbia twice struck down the Conference of State Bank Supervisors’ (“CSBS”) similar challenge to the OCC’s fintech charter because CSBS lacked standing and the claims were deemed unripe because no company had applied for the OCC’s fintech charter. Notwithstanding the uncertainty for non-depository fintech firms, the OCC, under the leadership of the acting Comptroller of the Currency Brian Brooks, continues to lend its support for expanding and updating its rules on banking under a modern financial system, emphasizing how the business-of-banking has changed in recent years. We can expect that any such modernization of OCC regulations will presumably also include similar expansion of the OCC’s application of the NBA’s charter.

The case is Lacewell v. Office of the Comptroller of the Currency, case number 19-4271, in the U.S. Court of Appeals for the Second Circuit. Click here and here for our prior coverage of this lawsuit.