The New York Department of Financial Services (DFS) has filed its opening brief with the Second Circuit in the OCC’s appeal from the district court’s final judgment in DFS’s lawsuit challenging the OCC’s issuance of special purpose national bank (SPNB) charters to non-depository fintech companies.

In May 2019, the district court denied the OCC’s motion to dismiss and found that the term “business of banking” as used in the National Bank Act (NBA) “unambiguously requires receiving deposits as an aspect of the business.” Because the district court also ruled that its decision should have nationwide effect regardless of whether the charter applicant has a New York nexus, the OCC has been unable to approve any applications for SPNB charters from non-depository fintech companies regardless of whether the applicant has a New York nexus. With the OCC’s and DFS’s consent, the district court entered a final judgment against the OCC in October 2019, thereby enabling the OCC to file an appeal. The OCC filed its opening brief in April 2020.

In its brief, DFS makes the following principal arguments:

• DFS has standing and its claims are ripe. The OCC has argued that DFS cannot show that it has suffered an “injury in fact” because its claims are entirely speculative and rely on a chain of events that has not occurred and may never occur, namely the OCC’s receipt and approval of an SPNB charter application from a non-depository fintech that intends to conduct business in New York and the commencement of business in New York by such fintech in a manner that causes the harms identified by DFS (such as lost revenues). The OCC also asserts that DFS’s claims do not satisfy the test for prudential ripeness—they are not fit for judicial consideration because they are contingent on the chartering of an applicant with a New York nexus and there is no present hardship to DFS from the court withholding a decision on its claims. In response, DFS argues that standing and ripeness exist not only when injury has already occurred, but also when it is imminent or when there is a substantial risk of harm. It asserts that injury to DFS’s sovereign interests is not speculative and sufficiently impending to support both standing and ripeness because (1) the OCC has actively invited and solicited the fintech industry to apply for charters and has represented that companies had begun the application process, and (2) one of the OCC’s stated objectives in deciding to accept applications is to allow fintech companies that receive an SPNB charter to escape state regulation.
• Nondepository institutions are not engaged in the “business of banking” within the meaning of the NBA. The OCC has argued that its interpretation of the “business of banking” is reasonable and entitled to Chevron deference because the NBA’s language is ambiguous as to whether deposit-taking is a necessary component of the “business of banking” and its legislative history does not support a finding that deposit-taking is necessary. In response, DFS argues that when the NBA was enacted in 1863, banks were understood to be depository institutions and that understanding is reflected in the NBA itself. In addition, the broader federal statutory scheme applicable to banks (which includes the Federal Reserve Act, the Federal Deposit Insurance Act, and the Banking Holding Company Act) presumes that banks regulated by the OCC will be depository institutions. DFS contends that when Congress has authorized the OCC to charter nondepository institutions, it has done so by amending the NBA outside of the business-of-banking clause.
• DFS is entitled to nationwide relief. The OCC has asserted that a federal court only has power under Article III to provide a remedy that is tailored to redress the plaintiff’s injury and DFS’s alleged injuries, and any remedies to which it is entitled, are limited to New York. In response, DFS argues that both the Administrative Procedure Act’s plain language and applicable precedent hold that when a court finds a regulation to be contrary to law, the regulation must be set aside.

Acting Comptroller of the Currency Brian Brooks recently previewed the OCC’s plans to introduce another special purpose national bank charter that would give payment companies a nationwide servicing platform and federal preemption of state laws regarding licensing and regulation of money transmitters and payment services providers. The outcome of the litigation in the Second Circuit can be expected to impact those plans.