By Lauren Bomberger
In the second major blow to the Office of the Comptroller of the Currency (“OCC”), Judge Victor Marrero of the U.S. District Court for the Southern District of New York ruled on October 21, 2019 that the OCC could not move forward with its FinTech charter. The OCC’s proposal to issue charters to FinTech companies, which was first announced by the agency in December 2016, met fierce backlash from the New York Department of Financial Services (“NYDFS”) and Conference of State Bank Supervisors (“CSBS”), who filed suits soon after the OCC’s announcement. Now, with the recent ruling in favor of NYDFS blocking the OCC from issuing any charters, and Comptroller Joseph Otting’s expressed intent to appeal the decision to the Second Circuit, it appears the legal battle will continue.
While the CSBS suit was dismissed for lack of ripeness, Judge Marrero permitted NYDFS to move forward with its claims against the OCC, denying the OCC’s motion to dismiss in May 2019. The legal uncertainty that these decisions have engendered makes the path forward for regulatory harmonization of competing state and federal laws unclear. In the immediate term, whether FinTech companies should continue to rely on the state-by-state licensing system, pursue a national bank charter or industrial loan company charter (“ILC”), or wait for case-by-case resolution of the many legal issues plaguing the industry depends, in large part, on the individual business models rather than resolution of the legal challenges to the charter. However, these cases mark the first time that the OCC’s authority to issue charters to non-depository institutions under 12 C.F.R. § 5.20 has been challenged in court.
The unprecedented nature of the current legal battle is noteworthy. The OCC, claiming authority from the National Bank Act, promulgated a final rule in 2003 that amended 12 C.F.R. § 5.20(e)(1) and defined the three core functions of banking as “(1) [r]eceiving deposits; (2) paying checks; or (3) lending money.” The regulation provides that the OCC can issue special purpose charters to institutions engaged in at least one of these activities. In addition to the critical legal implications for FinTech companies, resolution of this current debate will require the court to rule on the very nature of the business of banking itself.
As more non-banking companies, such
as Facebook, Amazon, and others, begin to provide services traditionally
reserved for banks, courts and legislatures will have to grapple with the
extent to which commerce and banking should overlap, whether the OCC is the appropriate
regulator to oversee these changes, and whether the OCC’s justification for its
authority as set out in 12 C.F.R. § 5.20 is a permissible interpretation of the
National Bank Act. Some of these larger policy questions are
probably best reserved for Congress and the state legislators, but the courts
have an important opportunity post-Gramm-Leach-Bliley to define the OCC’s role in the
regulation of commerce and banking, particularly whether the powers of banking as
defined under the National Bank Act include deposit-taking as a necessary prerequisite
to commencing the business of banking or whether, as the OCC so argues, the
agency can make reasonable interpretations of the statute’s meaning given the
ambiguity of the term “business of banking.” The OCC FinTech charter presents many novel
legal issues, and as the New York case moves to the Second Circuit, it will be
interesting to observe the court’s approach not only to the regulation of
FinTech, but to the larger debate on commerce and banking.
 Daniel S. Cohen, Federal Court Strikes Down Fintech Charter, Calling Other Nondepository Charters Into Question, Nat’l L. Rev. (Oct. 28, 2019), https://www.natlawreview.com/article/federal-court-strikes-down-fintech-charter-calling-other-nondepository-charters.
 Office of the Comptroller of the Currency, OCC To Consider Fintech Charter Applications, Seeks Comment (Dec. 2, 2016), https://www.occ.treas.gov/news-issuances/news-releases/2016/nr-occ-2016-152.html; Michelle Price, U.S. State Banking Regulators Sue Government to Stop Fintech Charters, Reuters (Oct. 25, 2018, 10:20 AM), https://www.reuters.com/article/us-usa-occ-fintech/u-s-state-banking-regulators-sue-government-to-stop-fintech-charters-idUSKCN1MZ256.
 See Philip Rosenstein, OCC’s Otting Confident That Fintech Charter Will Take Effect, Law360 (Oct. 27, 2019, 10:22 PM), https://www.law360.com/articles/1213998/occ-s-otting-confident-that-fintech-charter-will-take-effect.
 Jon Hill, CSBS Suit Over OCC Fintech Charter Tossed for Second Time, Law360 (Sept. 3, 2019 11:13 PM), https://www.law360.com/articles/1195100/csbs-suit-over-occ-fintech-charter-tossed-for-second-time; Jeremy T. Rosenblum, NY Federal District Court Deals Blow to OCC Fintech Charter, Nat’l L. Rev. (May 6, 2019), https://www.natlawreview.com/article/ny-federal-district-court-deals-blow-to-occ-fintech-charter.
 See Yuka Hayashi, Judge Denies Federal Agency’s Authority to Issue Fintech Bank Charters, Wall St. J. (Oct. 22, 2019, 1:53 PM), https://www.wsj.com/articles/judge-denies-federal-agencys-authority-to-issue-fintech-bank-charters-11571766837.
 See Juliana Gerrick et al., NYDFS Prevails Once More in OCC FinTech Charter Challenge, Davis Wright Tremaine LLP (Oct. 31, 2019), https://www.jdsupra.com/legalnews/nydfs-prevails-once-more-in-occ-fintech-98727/.
 Elizabeth Upton, Note, Chartering Fintech: The OCC’s Newest Nonbank Proposal, 86 Geo. Wash. L. Rev. 1393, 1416 (2018).
 12 C.F.R. § 5.20(e)(1)(i) (2015).
 See John L. Douglas, New Wine into Old Bottles: FinTech Meets the Bank Regulatory World, 20 N.C. Banking Inst. 17, 18–19 (2016).
 See BIS, Annual Economic Report 2019 55 (2019); Upton, supra note 9, at 1433.
 See Upton, supra note 9, at 1406, 1416, 1433.