On Tuesday December 12, 2017, a federal judge dismissed without prejudice a suit filed by the New York Department of Financial Services (NYDFS) against the Office of the Comptroller of the Currency (OCC) challenging the OCC’s proposed new special-purpose fintech charter. Judge Naomi Reice Buchwald of the U.S. District Court for the Southern District of New York held that the NYDFS suit required dismissal because the OCC has not yet reached a final decision on whether to issue special-purpose fintech charters. However, Judge Buchwald dismissed the case without prejudice and did not make any decision on the merits of whether the OCC’s issuance of special-purpose fintech charters would exceed the agency’s powers under federal law. To the extent that the OCC does finalize the fintech charter process and announces it is ready to accept fintech charter applications, NYDFS will likely re-file its suit.
NYDFS sued the OCC on May 12, 2017, challenging the OCC’s authority to issue special-purpose fintech charters. NYDFS argued that the OCC’s planned fintech charter exceeded the statutory limitations of the National Bank Act (“NBA”), which empowers the OCC to charter entities engaging in the “business of banking” or to fulfill a specific purpose expressly authorized by Congress. NYDFS also argued that the OCC exceeded its statutory authority under the NBA in promulgating a 2003 regulation upon which the OCC relies to authorize the special purpose fintech charter. Finally, NYDFS claimed that the planned special-purpose fintech charter violated the Tenth Amendment to the U.S. Constitution, arguing that “police power to regulate financial services and products delivered within a state’s own geographical jurisdiction is among a state’s most fundamental sovereign powers.” The causes of action were nearly identical to those brought by the Conference of State Bank Supervisors (CSBS), which had similarly filed suit against the OCC in the U.S. District Court for the District of Columbia on April 26, 2017—less than three weeks before the NYDFS suit.
The OCC moved to dismiss the suit, arguing NYDFS lacked subject matter jurisdiction—on standing and ripeness grounds—and failed to state a claim on the merits because the OCC has the proper statutory and constitutional authority to issue the charters. The OCC has also filed a similar motion to dismiss in the CSBS lawsuit, which is currently pending.
In her opinion, Judge Buchwald held that NYDFS did not yet have Article III standing because the agency had not yet suffered an injury in fact, and that NYDFS’ claims were not yet ripe because they were contingent on future events that might not occur. Judge Buchwald noted that “[a]ll three of plaintiff’s claims are grounded on the premise that there is a ‘Fintech Charter Decision’ subject to challenge.” However, Judge Buchwald emphasized that since the lawsuit was filed, the OCC has neither made a final decision on the special-purpose fintech charter, nor has the OCC received or reviewed any applications for such a charter. In addition, Judge Buchwald found that, as evidenced by recent OCC actions, the proposed issuance of fintech charters “has become increasingly uncertain.” Specifically, former Acting OCC Comptroller Keith Noreika represented on three separate occasions that the OCC had not yet made a final decision on whether to issue special-purpose fintech charters, and current Comptroller Joseph Otting, who was sworn into office on November 27, has not publicly set forth his position on the issuance of fintech charters.
It bears noting, however, that the suit was dismissed without prejudice, and the court did not decide any issues on the merits. NYDFS has reportedly indicated that it will likely re-file its suit in the event the OCC makes a final determination to issue special-purpose fintech charters. If the OCC does so, and NYDFS re-files its suit, the case should be closely monitored, as the substantive arguments advanced by NYDFS (and CSBS in its companion case)—that the OCC does not have authority to issue the special-purpose fintech charters under the NBA—appear to have some merit.
If you have any questions regarding the OCC’s proposal to issue special-purpose fintech charters, the NYDFS or CSBS lawsuits, or any other fintech or financial regulatory issues, please do not hesitate to contact Reed Smith’s global financial regulatory team.