Fintech and Deposits
Lacewell v. Office of the Comptroller of the Currency, No. 19-4271 (2d Cir. 2021)
- Facts: The New York State Department of Financial Services (DFS) regulates insurance, banking, and financial services in the state of New York. They filed a lawsuit against the Office of the Comptroller of Currency (OCC), alleging that their new initiative to charter “special-purpose national banks” (SPNB) from financial technology companies (fintechs) exceeded their authority under National Bank Act (NBA) that requires those in the “business of banking” to take deposits.
- Issue: Did the OCC exceed their statutory authority in seeking to charter banks from fintechs that may not require deposits?
- Rationale: Under the NBA, OCC has the power to charter national banks. Once chartered, the bank can “exercise…all such incidental powers as shall be necessary to carry on the business of banking; by discounting and negotiating promissory notes, drafts, bills of exchange, and other evidences of debt; by receiving deposits; by buying and selling exchange, coin, and bullion; by loaning money on personal security; and by obtaining, issuing, and circulating notes…” A SPNB is basically a nationally chartered bank that engages in a limited range of banking activities but must do at least one of the following three core banking functions: 1) receiving deposits, 2) paying checks, or 3) lending money. The first time OCC began inquiring into whether they would charter a bank that does not receive deposits was in 2016. Notably, the OCC had never granted federal charter as a SPNB. But between 2016 and 2018, the OCC released some white papers discussing the issue. In 2018, the OCC decided it would grant such charters and would be open to receiving applications. DFS brought suit and alleged that the OCC would be exceeding their authority under the NBA in granting these federal charters and 2) that the OCC has no power to grant SPNBs in the first place. DFS alleged harms that, if these charters would be granted, a) these SPNB fintechs would claim federal preemption when faced with state regulatory actions and b) DFS would lose revenue because their operating expenses are funded by assessments on their licensed banks. The OCC sought to dismiss based on a lack of standing. The trial court ruled that DFS had standing. On appeal, the Second Circuit reversed and held that DFS’s allegations of harm are far too speculative, as the OCC had not one single application for a fintech charter. The mere fact that they are opening applications was not persuasive, as nothing indicated that the OCC would be granting charters to applicants. Moreover, even if the OCC were to grant a charter to a non-depository fintech, it is still speculation that any state regulation would be preempted by federal. With all the speculation, it amounted to a lack of standing and, without actual injury, DFS would not be allowed to continue.