Future Of Fintech Charter Unclear

• Published date: 11 July 2021
• Subject Matter: Finance and Banking, Corporate/Commercial Law, Technology, Financial Services, Corporate and Company Law, Securities, Fin Tech
• Law Firm: Jenner & Block
• Author: Lindsey A. Lusk

A legal battle over a charter to allow Fintech companies to become special purpose national banks has been put on pause. But for how long will the future of the charter remain in limbo? On June 16, 2021, the Conference of State Bank Supervisors (the CSBS) and the Office of Comptroller of the Currency (OCC) agreed to stay the litigation, and the district court approved a motion formalizing the parties' agreement to put the litigation on hold for 90 days,¹ though some analysts have warned that the fate of the charter still may not be easily resolved.²

The pause follows the recent dismissal of a similar case in the Southern District of New York. In Lacewell v. Office of the Comptroller of the Currency, the New York Department of Financial Services (DFS) was attempting to block the OCC's special purpose national bank charter (the "Fintech charter"). The Fintech charter would allow certain non-depository Fintech companies to operate as "special purpose national banks" under the National Bank Act (NBA). Accordingly, the Fintech companies would not be subject to state-by-state regulation and licensing. DFS argued that the charter is unlawful because it exceeds the OCC's authority under the NBA.³

The case had been pending on appeal in the Second Circuit since April of 2020, after the district court denied the OCC's motion to dismiss and found that DFS had standing to sue.⁴ The Second Circuit heard oral argument in March 2021, and reversed the lower court's ruling on June 3, holding that DFS lacked standing to challenge the Fintech charter.⁵ It remanded the case to the district court with instruction to dismiss without prejudice.⁶

The dismissal of Lacewell and the agreement between the CSBA and OCC comes at a time when the acting Comptroller, Michael Hsu, has signaled that he may slow down efforts to implement the Fintech charter, noting that the OCC needs to determine how to charter Fintech firms in a "safe and sound way, where we can adapt to the innovation."⁷

While the future of the Fintech charter is unclear, were the OCC to succeed in court and move forward with the charter, it could have significant implications for both Fintech companies as well as consumers. For example, the charter would preempt state money transmitter and lender licensing laws, among other state laws. This would also mean that Fintech companies operating pursuant to this charter would be subject to a single regulator and with a single set of regulatory requirements. On the other hand...