The U.S. Office of the Comptroller of the Currency’s plan to offer a special-purpose bank charter for financial technology companies “undermines” the Department of Financial Services’ regulatory authority in New York, the state agency argued in court documents.
A federal court in Manhattan should not dismiss a complaint filed in May by New York’s banking regulator, Vullo v. Office of the Comptroller of Currency, 17 Civ. 3574, against the OCC, an independent office within the U.S. Treasury Department, because the state agency has standing to sue the agency, DFS lawyers said in the memorandum of opposition to dismiss filed on Monday.
“The Fintech Charter Decision is an unlawful assertion of power that usurps New York consumer protection laws and would preempt plaintiff’s ability to regulate any number of the over 600 nondepository institutions she currently regulates,” wrote Matthew Levine, the executive deputy superintendent for enforcement at the department.
The case is before Judge Naomi Reice Buchwald in federal district court in Manhattan.
The memo also argues the state has a valid claim under the Tenth Amendment, stating “there is nothing valid here about the OCC’s unabashed power grab.”
Under former Comptroller to the Currency Thomas Curry, the OCC said in 2016 that it would seek feedback on whether the public would benefit from granting fintech companies national bank charters. Given the differing state regulations and federal laws, financial technology companies have argued that navigating the regulatory landscape has made it difficult for them to expand.
In August, the office of the U.S. attorney for the Southern District of New York filed a motion to dismiss the complaint against the OCC and acting U.S. Comptroller of the Currency Keith Noreika.
Acting U.S. Attorney Joon Kim, representing the defendants, argued that DFS lacks standing in the complaint because the OCC’s regulations addressing the special-purpose national bank charter have resulted in no injury-in-fact, because the office has not reached a final decision on whether it will offer the specific type of national bank charter that does not take deposits and conducts activities other than fiduciary activities. The U.S. Attorney’s Office also argues that the complaint should be dismissed for failure to state a claim.
The harms to New York and its residents are “speculative and therefore insufficient to confer standing,” the U.S. Attorney’s Office said in court documents.
In response to the allegations, DFS said that the OCC’s granting of fintech charters would result in New York no longer being able to enforce laws created to protect consumers, such as usurious rates, abusive consumer practices and money laundering.
“New York law and supervision are entirely supplanted by the fintech charter decision and the protection of New Yorkers is relegated to Washington,” DFS said in court documents. “After an OCC fintech charter is issued to a specific entity, DFS will lose the right to supervise that entity and protect New Yorkers from predatory lending, illegal debt collection activities and other conduct that violates New York law.”
A lawyer for DFS further said that the fintech charter decision is a quantifiable threat and would take millions of dollars away from the state agency.
“The annual assessment for 2016-17 from licensed financial services firms, including money transmitters and check-cashing businesses, totaled $13.5 million. The fintech charter decision concretely threatens collection of necessary assessments going forward,” Levine wrote.
The Conference of State Bank Supervisors also sued the OCC in April, claiming that the federal banking agency overstepped its legal authority. In response to the lawsuit, the OCC moved to dismiss the case, arguing that state banking regulators can’t prove harm caused by the fintech charter, because no applications have been received or issued.
In a speech earlier this month, the acting comptroller of the currency gave no indication that there were plans by the OCC to push the special-purpose bank charter proposed for fintech in March forward.
“It’s kind of like dating. You have to sort of see what it’s like,” Noreika said. “One of the biggest challenges I perceive with the fintech charter is there may be a difference in expectations.”