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From Banking and Finance Law Daily, August 21, 2017

OCC moves to dismiss New York regulator’s suit to block proposed fintech charter

By J. Preston Carter, J.D., LL.M.

The Office of the Comptroller of the Currency’s motion to dismiss a New York regulator’s suit to block its proposed fintech charter argues that the court lacks subject matter jurisdiction and that the complaint fails to state a claim on which relief may be granted. The New York Department of Financial Services (DFS) sued the OCC in May. The complaint, which was filed in the U.S. District Court for the Southern District of New York, alleges that the OCC’s decision to grant Special Purpose National Bank (SPNB) Charters is "lawless, ill-conceived, and destabilizing of financial markets that are properly and most effectively regulated by New York State." (see Banking and Finance Law Daily, May 15, 2017).

The OCC’s motion to dismiss the complaint contends that the DFS lacks standing because:

  • The OCC’s regulation addressing the chartering of SPNBs (12 CFR §5.20(e)(1)) has resulted in no injury-in-fact. All of the potential injuries that the DFS identifies in its complaint are future-oriented and speculative.
  • The absence of OCC action means that this matter is not yet ripe for judicial review. The matter fails to meet the fitness prong for ripeness because the OCC’s inquiry regarding whether to offer SPNB Charters is ongoing, and it has not decided whether it will accept applications for the charters, making the policy initiative unfit for review. Also, the hardship prong is not met because the DFS will not suffer any immediate or significant hardship if the court were to delay review of this matter. Any injuries the DFS can identify are contingent on future actions that OCC might or might not take.
  • Any challenge to the OCC’s 2003 amendment to Section 5.20(e)(1) is time-barred by the statute of limitations applicable to civil actions against federal agencies. Insofar as the adoption of the amendment constitutes a final agency action that the DFS seeks to challenge here, any cause of action would have accrued on Jan. 16, 2004, when the final rule became effective. Accordingly, the time for filing a facial challenge to the regulation expired on Jan. 16, 2010.

The OCC also argues that the DFS complaint fails to state a claim on which relief may be granted because:

  • The OCC has not issued any Section 5.20(e)(1) charters; therefore, no "final agency action" exists that could give rise to a claim under the Administrative Procedure Act. The OCC has not completed its decision-making process, and its actions have not affected rights or obligations or resulted in legal consequences.
  • The OCC’s interpretation of the ambiguous term "the business of banking" in the National Bank Act is entitled to deference, and the OCC reasonably interpreted the term by reference to three core banking activities identified in the National Bank Act.
  • Finally, the OCC has statutory and constitutional authority to issue a Section 5.20(e)(1) charter. The limited judicial authority cited by the DFS is not entitled to weight, and the historical understanding of "bank" is consistent with the OCC’s interpretation.

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