Court Tosses DFS Challenge to Fintech Charters

Manatt, Phelps & Phillips, LLP

Manatt, Phelps & Phillips, LLP

Finding the action unripe, a federal court judge has dismissed the New York Department of Financial Services’ (DFS) challenge to the Office of the Comptroller of the Currency’s (OCC) decision to grant special purpose national bank charters.

What happened

In May, the DFS sued over the OCC’s decision to grant special purpose national bank (SPNB) charters “to a boundless class of undefined financial technology companies.” The New York federal court complaint largely tracked the allegations in a similar suit filed by the Conference of State Bank Supervisors (CSBS) and did not hold back in its criticism of the OCC’s plans.

“The Fintech Charter Decision is lawless, ill-conceived, and destabilizing of financial markets that are properly and most effectively regulated by New York State,” according to the DFS complaint. “It also puts New York financial consumers—and often the most vulnerable ones—at great risk of exploitation by federally chartered entities improperly insulated from New York law. The OCC’s reckless folly should be stopped.”

In response, the OCC filed a motion to dismiss, arguing that the DFS had suffered no injury in fact and that the claims were not ripe for judicial review. U.S. District Court Judge Naomi Reice Buchwald agreed on both counts.

The agency’s efforts with regard to the SPNB charters began with a “responsible innovation” initiative and continued with a white paper that requested public comment on the proposed charters, followed by a summary of the comments received and a draft supplement describing the process by which a fintech company would apply for a charter.

Former Comptroller Thomas J. Curry and former Acting Comptroller Keith Noreika both discussed the potential charters in multiple speeches, the court also noted. But at no time has the OCC’s plan been finalized.

“All three of plaintiff’s claims are grounded on the premise that there is a ‘Fintech Charter Decision’ subject to challenge,” Judge Buchwald wrote. “However, the OCC has not yet determined whether it will issue SPNB charters to fintech companies, nor has it received or reviewed any applications for any such charter.”

Despite the DFS’s reliance upon the white paper, the comptroller speeches and the draft supplement, none of these reflected a final decision, the court said. Each page of the supplement featured the word “draft” at the bottom, demonstrating that it was a work in progress, and the white paper “repeatedly made clear that the OCC had not yet decided whether it was going to grant SPNB charters to fintech companies.”

While the speeches “can reasonably be understood as suggesting that the OCC more likely than not would eventually grant these charters,” both Curry and Noreika made clear that the OCC was still engaged in the decision-making process, the court added.

The DFS countered that a decision had been made because the OCC unequivocally stated it has the authority to issue SPNB charters to fintech companies, but the court was not persuaded. “Even if true, this assertion alone is insufficient—the OCC’s determination that it has power to issue these charters does not mean that the OCC has decided to exercise that power,” Judge Buchwald said.

Because the OCC had not reached a “Fintech Charter Decision” when the lawsuit was filed, DFS suffered no injury and therefore lacked standing, the court found. The plaintiff’s alleged injuries “will only become sufficiently imminent to confer standing once the OCC makes a final determination that it will issue SPNB charters to fintech companies,” the court said. “In the absence of a ‘Fintech Charter Decision,’ DFS’s purported injuries are too future-oriented and speculative to constitute an injury in fact.”

Further, DFS’s claims were not ripe for review. “Here, plaintiff’s claims are unripe because they are ‘contingent on future events that may never occur,’ namely the decision by the OCC to issue SPNB charters to fintech companies,” the court wrote. “Until such a decision occurs, these claims are ‘directed at possibilities and proposals only, not a concrete plan which has been formally promulgated and brought into operation.’”

The court dismissed the suit without prejudice.

To read the memorandum and order in Vullo v. Office of the Comptroller of the Currency, click here.

Why it matters

The order puts an end to the DFS lawsuit for now. The CSBS action remains pending in federal court in Washington, D.C., although the OCC has filed a motion to dismiss in that case as well. The future of SPNB charters for fintech companies remains uncertain, with the new comptroller, Joseph Otting, initially indicating some receptivity to a fintech charter, the scope of which still remains a mystery.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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