On March 19, 2019, the New York State Department of Financial Services (“NYDFS”) filed a brief in opposition to the Office of the Comptroller of the Currency’s (“OCC”) motion to dismiss the NYDFS’ lawsuit challenging the OCC’s statutory authority to grant special purpose national bank charters to Fintechs (the “Fintech Charter”). The brief in opposition signals that the NYDFS will continue its opposition to the Fintech Charter under the leadership of Acting Superintendent Linda Lacewell, who replaced outgoing Superintendent Maria Vullo in February. In opposing the OCC’s motion to dismiss, the NYDFS argued that it has standing to challenge the Fintech Charter, the matter is ripe for judicial review, and its claims are not time-barred. The NYDFS also argued that the OCC’s interpretation of the “business of banking” is not entitled to Chevron deference and “should be invalidated in its entirety.”
Separately, the Conference of State Bank Supervisors (“CSBS”) in February filed a brief in opposition to the OCC’s previously filed motion to dismiss. The CSBS set forth arguments substantially similar to those set forth by the NYDFS. Accompanying the CSBS’ brief in opposition was an “Alternative Motion for Leave to Conduct Jurisdictional Discovery.”
As previously noted, these continued legal challenges create legal, regulatory, and strategic risk that must be taken into account by those Fintechs considering whether to apply for a Fintech Charter or to remain regulated on a state-by-state basis.
On a separate but related note, to date the Federal Reserve generally has not weighed in on whether special purpose national banks would have access to its payment systems, settlement services, and other resources. However, in a motion to dismiss filed earlier this month in the Southern District of New York, lawyers for the Federal Reserve argued that Federal Reserve Banks “have discretion over whether to accept deposits from banks, and thus have discretion to deny deposit account requests.” The motion was in response to a Connecticut state-chartered special purpose bank’s lawsuit that demanded access to a deposit account at the Federal Reserve and the favorable interest on excess reserves, an interest rate authorized by Congress in 2008 in response to the financial crisis and which the Federal Reserve argues it has discretion to allow access.
Further, in a recent advance notice of proposed rulemaking (“ANPR”), the Federal Reserve indicated that it may not be willing to provide pass-through investment entities, a type of special purpose financial institution, access to all of its services. This ANPR and related litigation could present a concern for Fintechs seeking access to the Federal Reserve’s payment systems and other services through the Fintech Charter. Critically, however, the ANPR distinguishes between special purpose state charters for depository institutions with narrowly focused business models and entities that are subject to federal prudential regulation and the same set of capital and other prudential requirements as other federally regulated banks. This clearly drawn distinction arguably supports the view that an OCC-chartered special purpose national bank would be held in a more favorable regard.