State Regulators Sue OCC Over Federal FinTech Charter, Again. On October 25, the Conference of State Bank Supervisors (CSBS) once again sued the Office of the Comptroller of the Currency (OCC) in the U.S. District Court for the District of Columbia, seeking declaratory and injunctive relief to stop the OCC from issuing special purpose national bank charters to nondepository financial technology (FinTech) companies. As previously reported in the Roundup, the CSBS brought a similar lawsuit in April 2017, which was eventually dismissed without prejudice for lack of standing and ripeness. The OCC’s subsequent announcement, in July 2018, that it will begin accepting applications for the FinTech charters, provides the impetus for the instant lawsuit and for a pending parallel proceeding against the OCC brought in September 2018 by the New York Department of Financial Services (NYDFS). A prior lawsuit brought by the NYDFS in May 2017 was similarly dismissed without prejudice for lack of standing and ripeness.
CSBS is a nationwide organization of state banking and financial services regulators, and it filed the lawsuit to represent the interests of its members. CSBS’ complaint argues that a robust system of state-level nonbank (i.e., nondepository) financial regulation already exists and alleges that the OCC is not authorized under the National Bank Act to issue national bank charters to companies that are not “carrying on the business of banking” (see 12 U.S.C.§§ 21, 24), unless a special purpose charter is expressly authorized by Congress. The complaint describes receiving deposits as the hallmark of the business of banking. Since FinTechs do not accept deposits, CSBS says, they cannot be chartered under the National Bank Act. CSBS refers to instances in which the OCC’s authority to issue charters to nondepository companies was successfully challenged. For example, in the late 1970s it was necessary for Congress to enact legislation permitting the OCC to charter a national trust bank after a federal district court held that the OCC lacked authority to charter an entity whose activities would be limited to fiduciary services without deposit-taking powers. No such legislation exists for nondepository FinTechs. The complaint also alleges that the processes surrounding the OCC’s FinTech charter program violate the rulemaking processes established under the Administrative Procedures Act. Finally, the complaint argues that the OCC’s FinTech charter program would preempt state law without a “clear and manifest purpose of Congress to supplant state law,” such that the proposal would violate the Tenth Amendment to the U.S. Constitution by invading powers otherwise reserved to the states.
Other recent developments are discussed below.
CFPB Delays Compliance Date for Payday Rule
On October 26, the Consumer Financial Protection Bureau (CFPB) announced that it intends to propose rules in January 2019 that will reconsider the CFPB’s current rule concerning payday, vehicle title, and certain high-cost installment loans (the “small-dollar lending rule”). The January 2019 proposed rules will also address the compliance date for the small-dollar lending rule. Although the CFPB has not made a final decision regarding the scope the proposed rules, it is currently planning to reconsider only provisions of the small-dollar lending rule that concern the consumer’s ability to repay the loan.
FDIC to Rescind Duplicative Disclosure Requirement
On October 25, the Federal Deposit Insurance Corporation (FDIC) issued a proposed rule to rescind Part 350 from the Code of Federal Regulations, removing an annual disclosure requirement that was duplicated by data publicly available on the FDIC’s website. Part 350 requires FDIC-insured state non-member banks and foreign branches, but not state thrifts, to prepare, and make available on request, annual disclosure statements consisting of: (1) required financial data comparable to specified schedules in the Call Report filed for the previous two year-ends; (2) information that the FDIC may require of particular banks, which could include disclosure of enforcement actions; and (3) other information at a bank’s option. The FDIC noted that other federal regulators have removed similar requirements and stated “With advancements in information technology since part 350 was adopted, including widespread public access to the internet (including through public libraries for individuals without their own direct personal access to the internet), information about the financial condition of individual insured depository institutions is now reliably and directly offered to the public through the FDIC’s and the Federal Financial Institutions Examination Council’s (FFIEC) websites.” Comments are due by November 24, 2018.
FinTech Flash: So, You Want to Be a Bank? Regulatory Process for Forming or Acquiring a Depository Institution - Part III
The third installment in this series of insights on bank charter considerations describes the process for seeking regulatory approval to form or acquire a depository institution. For more information, read the FinTech Flash issued by Goodwin’s FinTech practice.
Enforcement & Litigation
CFPB Will Seek to Clarify Standards for Actionable Conduct
On October 15, in remarks to the Mortgage Bankers Association, Acting Director Mick Mulvaney declared that the CFPB will move away from “regulation by enforcement” by clarifying standards of conduct, to provide the regulated community with a measure of certainty when engaging in business operations. Mulvaney stated that, under his leadership, the CFPB is looking to change tack, that the goal is to “move the needle to the middle” in balancing consumer protection goals with providing certainty to the regulated community, and that the CFPB will “continue to function as [it] did before—we are just taking a different way of looking at it.” Thus, while the CFPB will continue to pursue enforcement actions against entities that break the law, “[i]f you’re doing something we don’t like, but it’s within the law, then we’re going to leave you alone.” View the LenderLaw Watch blog post.
DOJ Settles With Mortgage Lender for $13.2 Million Concerning FHA Mortgage Certifications
On October 19, the Department of Justice announced that it settled allegations that a Florida-based mortgage lender violated the False Claims Act by falsely certifying that it complied with Federal Housing Administration mortgage insurance requirements for certain loans originated between 2006 and 2011 for $13.2 million. View the Enforcement Watch blog post.