2nd Circuit Orders Dismissal of NYDFS Suit Against OCC over Fintech Charters

On June 3, 2021, a Second Circuit panel ordered the dismissal of a lawsuit brought by the New York State Department of Financial Services (NYDFS) challenging the OCC’s decision to begin accepting applications for special-purpose national bank (SPNB) charters from fintech companies, including non-depository companies.

The NYDFS filed suit in the U.S. District Court for the Southern District of New York, alleging that the OCC’s decision to accept SPNB charter applications from non-depository fintech companies exceeded the OCC’s statutory authority under the National Bank Act (NBA).  The NYDFS asserted that because the OCC’s authority under the NBA is limited to “the business of banking,” the OCC cannot charter non-depository institutions.

The OCC moved to dismiss the complaint on the grounds that (1) the NYDFS lacks standing under Article III of the Constitution; (2) the NYDFS’s claims are constitutionally and prudentially unripe; and (3) the phrase “business of banking” in the NBA is ambiguous, and the OCC’s interpretation of it is reasonable and therefore entitled to deference.  The district court held that the NYDFS had standing, the claims were ripe, and that the OCC exceeded its authority because the NBA unambiguously requires national banks to receive deposits.  Accordingly, the district court denied the OCC’s motion to dismiss, and subsequently entered judgment in favor of the NYDFS.

The Second Circuit reversed the district court’s decision, and remanded with instructions to enter a judgment of dismissal without prejudice.  The Second Circuit held that the NYDFS lacked constitutional standing and that its claims were unripe because it failed to allege an actual or imminent injury in fact.  The NYDFS claimed it was injured because (1) the OCC’s decision to accept charter applications from non-depository fintech companies would lead to the preemption of state law, reducing the NYDFS’s ability to regulate non-depository fintechs; and (2) the NYDFS would lose revenue from assessments it currently charged such companies.  But the Second Circuit found those allegations of harm to be too speculative, noting that, to date, no non-depository fintech company has filed a formal SPNB charter application, and there is no guarantee the OCC will approve an application if it is filed.  Because the Second Circuit found that it lacked jurisdiction, it did not decide whether the “the business of banking” requirement of the NBA prevents the OCC from extending charters to non-depository fintech companies. 

The U.S. District Court for the District of Columbia dismissed a similar case against the OCC in 2019.  For further details, see WBK’s previous coverage here.