The Office of the Comptroller of the Currency (OCC) can grant special purpose bank charters to nondepository institutions, the Second Circuit court ruled Thursday, overturning a 2019 decision by a lower court that ruled the OCC’s fintech charter violated the National Bank Act (NBA) by granting licenses to companies that don’t hold deposits.
The three-judge panel said the New York Department of Financial Services (NYDFS), which successfully challenged the charter in 2019, failed to show how it had suffered "actual or imminent injury" from the charter, as no fintech firm has applied or received a charter through the program.
The OCC first proposed the fintech charter under former Comptroller Thomas Curry in 2016.
During his tenure at the OCC, former Acting Comptroller Brian Brooks was adamant that the regulator would successfully appeal the 2019 ruling that favored the NYDFS.
"The OCC historically has been given deference by the U.S. Supreme Court in its definition of what proper bank activities are. It would be truly radical to hold that the OCC’s interpretation of what a bank is didn’t prevail," he said at a speaking engagement with the Brookings Institution last summer.
The appeals court’s 40-page opinion, however, did not address its stance on whether or not it agreed that the proper definition of a bank applies to a deposit-holding institution, as the NYDFS argued.
"Having determined that DFS lacks Article III standing, and that its claims are not constitutionally ripe, we lack jurisdiction to decide the remaining issues on appeal," Judge Joseph F. Bianco wrote in the decision. "Specifically, we do not address the district court’s holding, on the merits, that the 'business of banking' under the NBA unambiguously requires the receipt of deposits … In reversing the amended judgment, we express no view on the district court’s determinations regarding these issues."
In response to the ruling, OCC spokesperson Bryan Hubbard said the agency appreciated the appeals court’s ruling, but added the regulator, under new Acting Comptroller Michael Hsu, has initiated a review of how it evaluates charter applications.
"As stated elsewhere, Acting Comptroller Hsu has initiated a review of OCC regulatory matters including those related to the standards the agency uses to evaluate charter applications and to ensure such decisions are carefully weighed in the broader context of our interconnected financial system," he said in a statement.
DFS Superintendent Linda Lacewell said Thursday her agency plans to keep up the fight against "any encroachment on the state regulatory system," and urged the OCC to "reconsider this ill-advised program."
"States are the vanguards of consumer protection which is more important now than ever given the global pandemic and resulting economic crisis which has disproportionately adversely affected communities of color and women," Lacewell told Law360. "Their needs remain imperative and DFS will continue to fight to protect them and vindicate their rights."