The US Office of the Comptroller of the Currency has taken a decision that might surprise some commentators, going ahead with its plans to begin accepting applications for national bank charters from nondepository financial technology (fintech) companies engaged in the business of banking despite the continuance of a lawsuit pending from the Conference of State Bank Supervisors.

Comptroller Joseph Otting says on the OCC's website: “The decision to consider applications for special purpose national bank charters from innovative companies helps provide more choices to consumers and businesses, and creates greater opportunity for companies that want to provide banking services in America. Companies that provide banking services in innovative ways deserve the opportunity to pursue that business on a national scale as a federally chartered, regulated bank.”

The phrase "on a national scale" is the operative one here. The CSBS website states: "An OCC fintech charter is a regulatory train wreck in the making. Such a move exceeds the current authority granted by Congress to the OCC. Fintech charter decisions would place the Federal Government in the business of picking winners and losers in the marketplace and taxpayers would be exposed to a new risk: failed fintechs.  

"Let us not forget that the last time the OCC pre-empted state consumer protection laws in a sweeping manner - in the early 2000s - predatory lenders were let off the hook and contributed to the largest number of home foreclosures since the Great Depression. On behalf of the citizens to whom we are accountable, state regulators are keeping all options open to stop this regulatory overreach."

The CSBS issued a writ against the OCC in the US District Court for the District of Columbia in late April. According to count 1 of its complaint, the OCC is exceeding the limits set out in the National Bank Act 1863, which only lets the OCC charter firms that (i) carry out the “business of banking” (which rules out fintechs because it can only be done by deposit-takers, according to the writ's interpretation of case law and subsequent statutes) or (ii) engage in activities to fulfill a special purpose expressly authorised by Congress, proffering the example of credit card banks and mentioning the fact that Congress has never explicitly allowed fintechs to receive bank charters. Count V runs along federal constitutional grounds, claiming that the OCC is breaking the Tenth Amendment. This says that the Federal Government possesses only powers that the constitution delegates to it explicitly, the remainder being reserved for the states or the people. Count V goes on to claim that these include “the police powers necessary to regulate financial services and protect consumers and the public interest from unsound and abusive financial practices.”