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Fintech in Brief: CSBS Challenge to OCC Fintech Charter Dismissed

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09.04.2019 | Legal Update

On September 3, 2019, Judge Dabney Friedrich of the U.S. District Court for the District of Columbia dismissed the Conference of State Bank Supervisors’ (“CSBS”) second suit challenging the Office of the Comptroller of the Currency’s (“OCC”) statutory authority to grant special purpose national bank charters to Fintechs (“Fintech Charter”) because the CSBS “continues to lack standing and its claims remain unripe.”

The CSBS has been staunchly opposed to and has litigated the OCC’s proposed Fintech Charter, this being its second lawsuit before the OCC has even received its first application. Judge Friedrich had dismissed the CSBS’ suit in 2017 on similar grounds, finding that the case did not demonstrate an actionable injury to any CSBS member and was not yet ripe to be heard, given that no charter had been issued.

Judge Friedrich’s decision comes four months after Judge Victor Marrero of the U.S. District Court for the Southern District of New York (“SDNY”) denied two of three counts of the OCC’s Motion to Dismiss the New York State Department of Financial Services’ (“NYDFS”) challenge to the OCC’s statutory authority to grant the Fintech Charter, finding that the challenge was ripe because the OCC had publicly announced that it had met with hundreds of Fintechs and was soon expecting a Fintech Charter application. The NYDFS’ first challenge had been previously dismissed on similar grounds. The parties are presently negotiating a proposed final judgment in the NYDFS suit that would allow the OCC to appeal the decision to the Second Circuit Court of Appeals sooner rather than later.

As previously noted, the differing District Court decisions and ongoing legal challenges create legal, regulatory, and strategic risk that must be considered by those Fintechs assessing the Fintech Charter or other charter alternatives, including whether to remain regulated on a state-by-state basis. Although the OCC technically scored a victory with Judge Friedrich’s decision, the substantive issue of whether the National Bank Act and related OCC regulations permit non-depository special purpose national bank charters remains unresolved and explains the OCC’s urgency to appeal the SDNY decision to the Second Circuit Court of Appeals in a potential attempt to fast-track the matter to the Supreme Court for nationwide finality on any states’ federalism challenges. Until such a resolution, however, the ongoing uncertainty over this issue will continue to have a chilling effect on potential Fintech Charter applicants and further delay the development of a uniform national regulatory framework for Fintechs.

This update is for information purposes only and should not be construed as legal advice on any specific facts or circumstances. Under the rules of the Supreme Judicial Court of Massachusetts, this material may be considered as advertising.

Initial Fintech in Brief Advisories:
New York State Challenge to OCC Fintech Charter Survives Motion to Dismiss (May 3, 2019)

Update on Legal Challenges to OCC Fintech Charter (March 27, 2019)

OCC Fintech Charter Continues to Face Legal Challenges (January 30, 2019)

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