In an effort to prevent the Office of the Comptroller of the Currency (OCC) from creating a national nonbank charter, the Conference of State Bank Supervisors (CSBS) has filed a complaint in the U.S. Court for the District of Columbia.
The CSBS asserts that the creation of such charters is unlawful and would harm markets, innovation and consumers.
“The OCC’s action is an unprecedented, unlawful expansion of the chartering authority given to it by Congress for national banks,” CSBS President and CEO John W. Ryan said in a statement. “If Congress had intended it to be used for another purpose, it would have explicitly authorized the OCC to do so. If the OCC is allowed to proceed with the creation of a special purpose nonbank charter, it will set a dangerous precedent that any federal agency can act beyond the legal limits of its authority. We are confident that we will prevail on the merits.”
The complaint alleges that the OCC has exceeded its authority under the National Bank Act and other federal banking laws, which only authorize the agency to charter institutions that engage in the “business of banking.”
The OCC has authority to grant charters for national banks and federal savings associations, including charters for special purpose national banks (SPNB) under the National Bank Act and Home Owners’ Loan Act. A special purpose national bank that conducts activities other than fiduciary activities must conduct one or more of the following three core banking functions: receiving deposits, paying checks or lending money. Special purpose national banks are governed by and organized under provisions of the National Bank Act, which outline classes of shares, voting rights, number of directors and terms of office, along with all other national banks. They also may only engage in activities permissible for national banks, which are identified in statutes, OCC regulations and legal opinions and corporate decisions, regularly published by the OCC.
The CSBS argues that the OCC does not have the authority to create a special purpose charter for nonbanks without specific congressional approval. CSBS also asserts that because Congress has not explicitly given the OCC authority to create nonbank charters, such charters are unlawful and unconstitutional so the states should retain the authority to regulate and supervise non-depository companies.
“The OCC’s proposed action ignores Congress, seeks to preempt state consumer protection laws, harms markets and innovation, and puts taxpayers at risk of inevitable fintech failures,” Ryan said. “This is a dangerous combination and one the court should decisively halt. To protect consumers and taxpayers, to promote innovation, and to ensure fair and open competition, CSBS was forced to take legal action against the OCC charter.
“State regulators already supervise a vibrant financial services marketplace that includes non-banks and banks. Tens of thousands of mortgage, money transmission, debt collection and consumer finance companies – not to mention over 75 [percent] of this nation’s banks – already operate under the state system. That regulatory structure has produced a robust platform for innovation. Moving forward, state regulators will continue to streamline regulation and automate licensing across state lines, ensuring the system will work even better for state-licensed companies and consumers while protecting taxpayers.”
Independent Community Bankers of America (ICBA) President and CEO Camden Fine released a statement supporting the CSBS in its lawsuit.
“The Conference of State Bank Supervisors’ lawsuit filed today against the Office of the Comptroller of the Currency illustrates the serious concerns raised by the OCC’s unprecedented proposal to grant special-purpose national bank charters to financial technology companies,” Fine said. “The CSBS suit seeks to prevent the national bank regulator from instituting a nonbank charter that the OCC is pursuing without congressional approval or a formal rulemaking process that would have clarified such important questions as the OCC’s expectations for capital, liquidity, supervision and examination as well as whether new charter holders would have direct access to the Federal Reserve’s clearing and payment system and its discount window.
“ICBA commends the CSBS for elevating this issue and remains deeply concerned with the OCC’s proposed fintech charter, which the agency has pursued without congressional authorization or a formal rulemaking process subject to public comment,” Fine added.
The ICBA wrote to the OCC about the association’s concerns about fintech charters and again in early April, urging the agency to rescind its proposal to grant special purpose charters for fintechs. The April letter from ICBA also urged the OCC to request specific congressional authorization to grant such charters, propose rules for public comment, consult with the other banking agencies, clearly define which companies would be eligible and ensure that any new chartered institution is subject to the same supervision and regulation as required of community banks.