On Thursday (May 2, 2019), a federal district court in the Southern District of New York issued an order allowing the New York Department of Financial Services (DFS) to proceed with a lawsuit seeking to block the Office of the Comptroller of the Currency (OCC) from issuing federal charters to fintech companies. As explained in a prior blog post, in December 2017, another federal judge dismissed a predecessor lawsuit by DFS because the OCC had not yet made “a final determination” that it would issue such charters. Subsequently, in July 2018, the OCC announced that it would begin accepting charter applications from fintech companies.

After the OCC’s July 2018 announcement, DFS filed another lawsuit seeking to block the OCC from issuing charters to fintech companies. The OCC moved to dismiss the lawsuit, arguing that the challenge was still premature because the OCC had not received or approved any fintech charter applications.

In Thursday’s order, U.S. District Court Judge Victor Marrero rejected the OCC’s argument and found that DFS’s claims were ripe for adjudication. Judge Marrero noted that the OCC had invited fintech companies to discuss potential charters, which demonstrated some demand for, and interest in, the charters. According to Judge Marrero, this interest, coupled with the observation that the OCC spent years developing its July 2018 decision, indicated that the OCC “has the clear expectation of issuing” such charters.

Judge Marrero also rejected the OCC’s argument that DFS had failed to state a claim for relief under the Administrative Procedure Act (APA). DFS argued that the OCC’s proposal to charter fintech companies exceeds the agency’s authority under the National Bank Act, which permits the OCC to charter firms that engage in the “business of banking.” On that issue, Judge Marrero found that the term “business of banking,” as used in the National Bank Act, “unambiguously requires receiving deposits as an aspect of the business.”

However, Judge Marrero granted the OCC’s motion to dismiss DFS’s claim under the Tenth Amendment to the U.S. Constitution. The Court found that DFS’s claim did not implicate the Tenth Amendment because it related only to whether Congress had clearly chosen to preempt state chartering authority, rather than whether Congress had exceeded its enumerated powers.

As explained in a prior Legal Update, in April 2018, a District of Columbia federal court dismissed a similar lawsuit filed by the Conference of State Bank Supervisors (CSBS) on the basis that the OCC had not yet issued any fintech charters. The CSBS re-filed that lawsuit in October 2018, and the lawsuit remains pending in the District of Columbia federal court.

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