State bank regulators are suing a federal counterpart over a provision aimed at defining banking in the Internet age.
The Conference of State Bank Supervisors filed a lawsuit against the Office of the Comptroller of the Currency Thursday over the latest version of its financial technology charter. The charter would allow financial technology companies that don’t take deposits to circumvent state-by-state registration and some state-level regulations, as banks do.
“Common sense and the law tell us that a nonbank is not a bank,” said CSBS President and CEO John Ryan in a release. “Thus, CSBS is calling on the courts to stop the unlawful, unwarranted expansion of powers by the OCC.”
CSBS argues that the charter would hurt state consumer regulations. The OCC pushed back on that in an emailed statement.
"Contrary to the misleading claims by the Conference of State Bank Supervisors president and CEO in his news release that have nothing to do with the legal authority to issue such charters, it is incorrect to assume that state consumer protection laws cease to apply when a company becomes a national bank," said an OCC spokesperson in an email. The spokesperson listed consumer protections that would still apply to fintech companies that receive the new charter.
State bank regulators claim that the charter, which was first proposed by Obama appointee Tom Curry in 2016, oversteps the federal bank agency’s powers and that a fintech charter can only be created by Congress passing a new law.
The OCC argues that its authority under previous law passed by Congress allows it to issue the charter.
"The decision to accept applications from nondepository fintech companies engaged in the business of banking supports the dual banking system and provides parity to options already available at the state level. The agency looks forward to defending its authority and to timely resolution of the issue," the spokesperson said in the agency's statement.
It’s not the first time CSBS has sued the OCC over this issue. Last year, lawsuits from the state bank regulators were tossed out because a charter had yet to be issued; the judge ruled that states couldn’t argue damage had been done yet.
But the OCC renewed the push for the initiative, which allows digital-based companies that offer services like payments and lending to operate nationally with federal supervision and regulation.
That prompted a renewed suit in September from the New York Department of Financial Services, an influential state regulator because New York’s role in the global financial sector. The CSBS, which is an association of all U.S. state bank regulators, held off at the time, but its board issued a statement in September making clear they still opposed the proposal and could continue legal challenges to it, which the group did today.
“Substantively nothing has changed. We still have all the same public policy objections,” said CSBS Deputy General Counsel Margaret Liu told the Washington Examiner.
A charter has still yet to be issued. One factor: Companies remain leery of it being taken away via a lawsuit from state regulators.