OCC files to motion to dismiss CSBS lawsuit seeking to block OCC approval of Figure Technologies charter application

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The Office of the Comptroller of the Currency has filed a motion to dismiss the lawsuit filed by the Conference of State Bank Supervisors (CSBS) in D.C. federal district court seeking to block the OCC from granting a national bank charter to Figure Technologies Inc.  The lawsuit represents CSBS’s third challenge to the OCC’s authority to issue special purpose national bank (SPNB) charters to non-depository fintech companies.  The first two lawsuits were dismissed on ripeness grounds.

Once again, the OCC argues that CSBS lacks standing and that its claims are not ripe.  The OCC argues that CSBS lacks standing to challenge the OCC’s authority to issue an SPNB charter or approve Figure’s charter application because (1) Figure has applied for a full service bank charter, (2) Figure’s application has not yet been approved, and (3) CSBS’s assertions that either it or any of its members will be injured are pure conjecture.  The OCC further argues that CSBS’s claims are constitutionally unripe because CSBS does not face a sufficiently “imminent” injury in fact and are prudentially unripe because the dispute is unfit for judicial review before a decision is made on Figure’s application.

Unlike the first two complaints, the relief sought by CSBS in its third complaint is not limited to restricting the OCC’s authority to issue bank charters.  In the third complaint, CSBS also asks the court to declare that the OCC’s preemption regulations (12 C.F.R. 7.4007, 7.4008, 34.4) are invalid because (1) they do not comply with the Dodd-Frank Act’s standard limiting preemption to state consumer financial laws that “prevent or significantly interfere with” the exercise of a national bank’s powers, (2) they were promulgated without the OCC undertaking the case-by-case analysis for preemption determinations required by the Dodd-Frank Act, and (3) the OCC has failed to comply with the Dodd-Frank Act’s five-year periodic review requirement.

In its motion to dismiss, the OCC calls this new claim “a thinly veiled attempt to bootstrap a challenge to the OCC’s Preemption Regulations to the pending Figure Application.”  The OCC argues that CSBS lacks standing to challenge the preemption regulations because an OCC decision whether to charter a national bank is not a preemption determination and therefore the requirements for such determinations are not in issue.  It also argues that because Figure’s application has not yet been approved, a challenge to the preemption regulations based on Figure’s charter application is unripe.

Alternatively, the OCC argues that the complaint should be dismissed for failure to state a claim.  In support, the OCC makes the following principal arguments:

  • The National Bank Act (NBA) gives the OCC authority to issue SPNB charters to non-depository companies.  (In its complaint, CSBS alleged that there was uncertainty as to whether Figure Bank will accept deposits but claimed that regardless of whether Figure Bank would accept deposit, “it is clear that Figure Bank has applied for a [SBNB charter] because it will not be FDIC-insured.”)
  • In response to CSBS’s argument that the OCC lacks authority to issue SPNB charters to uninsured depository institutions:
    • The OCC has authority to reasonably interpret the NBA to determine that a national bank is not required to obtain deposit insurance to lawfully commence “the business of banking.”
    • No provision in the Federal Deposit Insurance Act (FDIA) requires a depository national bank to obtain FDIC insurance. The 2019 Federal Deposit Insurance Improvement Act (FDICIA) amended the FDIA to change the framework that previously provided for automatic deposit insurance for national banks upon receipt of an OCC charter to a framework that gives national banks discretion whether to apply for deposit insurance.
    • The Federal Reserve Act (FRA) also does not require national banks to be insured.  Language in the FRA language cited by the CSBS as imposing such a requirement on national banks directly conflicts with the current deposit insurance framework as set forth in the FDICIA.
  • CSBS’s challenge to the preemption regulations is time-barred.
  • CSBS’s view that the Dodd-Frank Act requires a strict application of the phrase “prevent or significantly interfere” to correctly apply the Barnett preemption standard is inconsistent with the Barnettdecision itself and the legislative history of the Dodd-Frank Act provision.  The phrase “prevent or significantly interfere” does not exclude other preemption formulations referenced in Barnett.  The preemption regulations were consistent with the Barnett standard when they were promulgated in 2004 and because the Dodd-Frank Act did not change this standard but in fact codified it, the preemption regulations remain consistent with the Dodd-Frank Act.
  • The case-by-case analysis and five year periodic reviews required by the Dodd-Frank Act only apply to OCC preemption determinations made after July 21, 2011.  Accordingly, they do not apply to the preemption regulations promulgated in 2004.  The OCC’s 2011 amendments to the preemption regulations did not themselves preempt any additional laws and therefore were not preemption determinations for purposes of the Dodd-Frank Act.

In March 2021, the U.S. Court of Appeals for the Second Circuit heard oral argument in the OCC’s appeal from the district court’s final judgment in the lawsuit filed by the New York Department of Financial Services (DFS) seeking to block the OCC’s issuance of SPNB charters to non-depository companies.  After finding that the DFS had standing to file its lawsuit, the district court concluded that the term “business of banking” as used in the NBA only makes depository institutions eligible to receive national bank charters.  Although the district court reached this conclusion in denying the OCC’s motion to dismiss, the court subsequently, with the OCC’s and DFS’s consent, entered a final judgment against the OCC.  This allowed the OCC to file an appeal.

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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