Dive Brief:

• The trade group Independent Community Bankers of America sued the Office of the Comptroller of the Currency and Comptroller Jonathan Gould Friday in federal court, contending the agency has “far exceeded” its statutory authority with its recent trust bank charter approvals.
• The lawsuit, filed in U.S. District Court for the District of Columbia, argues the OCC’s current approach also introduces risk to the financial system and consumers. “This vast expansion of power creates a gaping hole in financial regulation,” the trade group asserts in the lawsuit, filed under the Administrative Procedure Act. 
• ICBA is asking the court to find unlawful both an OCC rule and an interpretive letter that its trust charter approvals rest on, and rescind the charter approval for cryptocurrency company Protego Holdings Corp. An OCC spokesperson on Monday said the agency doesn’t comment on litigation.

Dive Insight:

During President Donald Trump’s second term, the OCC has approved or conditionally approved 21 national trust bank charters, with 13 of those for crypto companies, ICBA said in the lawsuit.

The national trust bank designation allows the companies to preempt many state law requirements and avoid federal requirements for depository institutions, the lawsuit said. 

The OCC’s current posture “perversely allow[s] entities engaged in highly risky cryptocurrency and digital assets activities to enter the banking system under lightly regulated national charters rather than the more rigorously regulated traditional bank charter,” which puts community banks at a “severe competitive disadvantage,” ICBA’s lawsuit argues.

ICBA pointed to two small community bank members under $2.5 billion in assets that each spend about $1.5 million annually on regulatory requirements, including paying Federal Deposit Insurance Corp. assessments and complying with Community Reinvestment Act requirements, which trust banks aren’t required to do.

Those community banks have “each already lost hundreds of thousands of dollars in business this year alone to cryptocurrency companies that the OCC has conditionally approved for national trust bank charters,” the lawsuit alleges. 

ICBA President and CEO Rebeca Romero Rainey, who has noted trust charters feed into concerns about deposit flight, said Congress didn’t create the national trust charter “as a side door into the banking system.”

“ICBA is asking the court to return the OCC to its statutory limits,” she said in a Friday statement. “Any non-fiduciary firm seeking the benefits of a federal bank charter should meet the same standards as community banks.”

The OCC has “become dramatically more permissive in regulating crypto companies” in line with Trump’s promise to make the U.S. “the crypto capital” of the world, the lawsuit contends. As the second Trump administration adopted positions “far more accommodating to the crypto industry,” the OCC “acted quickest of all,” rescinding Biden-era guidance less than two months into Trump’s second term, ICBA said in the lawsuit. 

The lawsuit took particular aim at an OCC rule adopted in March and an interpretive letter issued by Gould in 2021, while he was at the OCC during the first Trump administration, both of which provide the basis for the agency’s trust charter approvals. 

“This sweeping assertion of newfound power is wrong. It fundamentally misinterprets the statutes,” the lawsuit asserts. “There is no statutory basis for the OCC’s position that it can charter crypto trust banks that are neither depository nor fiduciary.”

The lawsuit also zeroed in on crypto company Protego, which received conditional approval for a charter in February. The company, which counted collapsed crypto firm FTX among its investors, has “a history of severe financial problems” and “appears to have insufficient capital and liquidity support,” the lawsuit said.

On Monday, contacts for Protego couldn’t immediately be reached for comment, and the company’s website wasn’t working.

Ji Hun Kim, the CEO of trade association Crypto Council for Innovation, said ICBA’s lawsuit “is a clear attempt to resist national trust charters, payments innovation, and competition in financial services.”

“Restricting banking to legacy business models will not stop demand for financial innovation,” Kim said in a Monday statement. “For over a century, the Office of the Comptroller of the Currency has appropriately adapted its oversight and chartering frameworks as financial services change.”

Gould has defended the agency’s conditional trust charter approvals, saying “we don’t have a zero risk tolerance anymore.”

“That’s not what the statute says. The statute talks about a reasonable chance of success. That’s how we evaluate applications,” Gould said during a Semafor event in May. 

Gould, who previously worked as chief legal officer at blockchain firm Bitfury, has told Banking Dive crypto is “no longer this other,” and that he doesn’t view the relationship between traditional finance and digital assets as antagonistic. 

But that stance has put him at odds with bank trade groups, who contend that allowing crypto and fintech companies to offer bank-like products while operating under a less rigorous charter could increase risks to consumers and the financial system.