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Conference of State Bank Supervisors v. Office of Comptroller of Currency

United States District Court, District of Columbia

April 30, 2018



          DABNEY L. FRIEDRICH, United States District Judge

         Before the Court is the Defendants' Motion to Dismiss. Dkt. 9. For the reasons that follow, the Court will grant the motion.

         I. BACKGROUND

         In this action, the Conference of State Bank Supervisors (CSBS) challenges the purported Nonbank Charter Decision of the Office of the Comptroller of the Currency and the Comptroller[1](collectively, the OCC). CSBS is a nationwide organization of state banking and financial services regulators from all fifty U.S. states, the District of Columbia, Guam, Puerto Rico, the U.S. Virgin Islands, and American Samoa. Compl. ¶ 13, Dkt. 1. The OCC is a bureau of the U.S. Department of the Treasury and functions as the primary supervisor of banks with national charters. Id. ¶ 16; see also 12 U.S.C. §§ 1, 26-27 (establishing the OCC and empowering it to grant national bank charters to entities that carry on “the business of banking”).

         Financial regulation in the United States is shared between federal and state governments. Compl. ¶ 27. As a general matter, a bank may choose to pursue a state or national charter, and the bank will then be regulated primarily by the corresponding authority. Id. ¶ 21. Through the challenged Nonbank Charter Decision, the OCC allegedly decided to move forward with a process for considering national bank charter applications from companies that provide bank-like services but do not accept deposits, which have historically been regulated by the states. See Id. ¶¶ 1, 3, 5, 26. Such firms have experienced “explosive growth” in recent years. Id. ¶ 4. Many of them are financial technology companies, or Fintechs, that provide technology-driven financial services. Id. ¶¶ 2-4. For example, a Fintech might develop new ways to provide traditional services like payment processing, or a Fintech might develop cutting-edge services like crowd funding and digital currencies. Id. ¶ 2. The OCC estimates that there are now more than 4, 000 Fintechs in the United States and the United Kingdom, fueled by worldwide investment that has increased from $1.8 billion to $24 billion in the last five years. Id. ¶ 4.

         The National Bank Act governs any decision to grant national bank charters to Fintechs or other firms that do not accept deposits. Under the Act, “the Comptroller shall examine into the condition” of charter applicants and determine whether each applicant's condition “entitle[s] it to engage in the business of banking.” 12 U.S.C. § 26. If a charter applicant “is lawfully entitled to commence the business of banking, ” the OCC shall issue a national charter. Id. § 27. Also, the OCC is authorized to prescribe rules and regulations to carry out its chartering responsibilities. Id. § 93a. National charters apply a uniform set of requirements to national charter recipients and exempt recipients from uneven state regulatory landscapes. Compl. ¶ 23. Historically, the OCC has granted national charters only to banks that receive deposits or other special purpose banks specifically authorized by statute. See 12 U.S.C. § 27; 12 U.S.C. § 1841(c)(2)(D), (F) (authorizing trust banks, banker's banks, and credit card banks); Compl. ¶¶ 38-46. Indeed, CSBS does not allege that a single national charter has been granted to an entity that does not receive deposits, and the OCC confirms the same. See Defs.' Mem. at 14, Dkt. 9-2.

         In 2003, the OCC promulgated a rule interpreting its chartering authority to include the power to charter a special purpose bank that limits its activities to “any . . . activities within the business of banking, ” provided that the special purpose bank conducts “at least one of the following three core banking functions: Receiving deposits; paying checks; or lending money.” 12 C.F.R. § 5.20(e)(1); see Rules, Policies, and Procedures for Corporate Activities; Bank Activities and Operations; Real Estate Lending and Appraisals, 68 Fed. Reg. 70122 (Dec. 17, 2003); Compl. ¶ 55. Under the rule, the OCC could charter a special purpose bank that does not receive deposits, so long as the bank pays checks or lends money. That may open the door (assuming other requirements are met) for a Fintech that does not accept deposits to acquire a national charter.

         That particular aspect of the 2003 rule lay dormant for more than a decade. But in March 2016, the OCC announced through a white paper that it had begun to study the regulatory impacts of innovations in financial technology. Compl. ¶ 47 (citing Office of the Comptroller of the Currency, Supporting Responsible Innovation in the Federal Banking System: An OCC Perspective (Mar. 2016), In a December 2016 speech, then-Comptroller Curry said that “the OCC will move forward with chartering financial technology companies that offer bank products and services and meet our high standards and chartering requirements.” Thomas J. Curry, Special Purpose National Bank Charters for Fintech Companies (Dec. 2, 2016), Dkt. 1-2 at 4 (emphasis in remarks as published on the OCC's website). According to Curry, “I have asked staff to develop and implement a formal agency policy for evaluating applications for fintech charters. The policy, informed by the comments we receive on our [forthcoming] white paper, will articulate specific criteria for approval as well as issues that we should consider and conditions that should be met before granting such charters.” Id. at 6.

         Soon after, the OCC published a white paper that outlined general “baseline” supervisory requirements for charter holders. Office of the Comptroller of the Currency, Exploring Special Purpose National Bank Charters for Fintech Companies (Dec. 2016), Dkt. 1-3; see also Compl. ¶ 56-57. This white paper solicited public feedback, and many parties registered objections. Compl. ¶¶ 58-66. CSBS itself raised a variety of concerns relating to the lawfulness and wisdom of granting national charters to Fintechs. Letter from CSBS to Comptroller Curry (Jan. 13, 2017), Dkt. 1-4; see also Compl. ¶ 65. The OCC published a response to these concerns on March 15, 2017. Office of the Comptroller of the Currency, OCC Summary of Comments and Explanatory Statement: Special Purpose National Bank Charters for Financial Technology Companies (2017), Dkt. 1-6.

         On the same day, the OCC published a draft supplement to the Comptroller's Licensing Manual. See Office of the Comptroller of the Currency, Evaluating Charter Applications from Financial Technology Companies (Mar. 2017), Dkt 1-5; see also Compl. ¶ 67. The draft supplement pointed to 12 C.F.R. § 5.20(e)(1) to suggest that Fintechs that do not take deposits eventually may be allowed to apply for national charters if the OCC finalizes the language in the draft. Compl. ¶¶ 67-68. In addition, the draft supplement invited public feedback. Id. ¶ 74. Many parties again registered concerns and objections. Id. ¶¶ 74-75.

         The OCC did not respond to these concerns and did not change the draft status of the supplement between March 15 and April 26, 2017, see Id. ¶ 76, on which date CSBS filed this challenge to the OCC's purported decision to move forward with chartering national banks that do not accept deposits, i.e., the Nonbank Charter Decision, see Id. at 31, ¶ 12. CSBS asserts five claims: (1) the OCC does not have statutory authority for the Nonbank Charter Decision; (2) the OCC does not have statutory authority for a corresponding regulation; (3) the Nonbank Charter Decision failed to follow the appropriate rulemaking procedures; (4) the Nonbank Charter Decision was arbitrary and capricious; and (5) the Nonbank Charter Decision violated the Tenth Amendment. See id ¶¶ 99-121.

         Since CSBS filed its complaint, a number of developments have occurred. The OCC has undergone two leadership changes along with the changing presidential administrations, so Curry is no longer Comptroller: he was succeeded in May 2017 by Acting Comptroller Keith A. Noreika, who was then succeeded by the current Senate-confirmed Comptroller Joseph M. Otting. The OCC's new leadership suggested that, even if a Fintech attempted to apply, the OCC may not accept the application. In July 2017, for example, Acting Comptroller Noreika stated:

[A]t this point the OCC has not determined whether it will actually accept or act upon applications from nondepository fintech companies for special purpose national bank charters that rely upon [12 C.F.R. 5.20(e)(1)]. And, to be clear, we have not received, nor are we evaluating, any such applications from nondepository fintech companies. The OCC will continue to hold discussions with interested companies while we evaluate our options. These meetings have been very informative and provide insight into the financial landscape and the companies providing traditional banking services as they continue to evolve.

         Keith A. Noreika, Public Remarks before the Exchequer Club (July 19, 2017), Dkt. 9-3 at 10. Also in the time since the complaint was filed, a similar lawsuit was filed against the OCC in the Southern District of New York by Maria Vullo, Superintendent of the New York State Department of Financial Services. Vullo v. OCC, No. 17-cv-3574, 2017 WL 6512245 (S.D.N.Y. Dec. 12, 2017). The Southern District recently dismissed that case, concluding that the plaintiff lacked standing and that the dispute was not ripe. Id. at *8-10.

         The OCC now moves to dismiss this action under Rules 12(b)(1) and 12(b)(6) of the Federal Rules of Civil Procedure. Dkt. 9.


         The U.S. Constitution limits the federal courts to deciding cases or controversies, U.S. Const. art. III, § 2, and it is “presumed that a cause lies outside this limited jurisdiction, ” Kokkonen v. Guardian Life Ins. Co., 511 U.S. 375, 377 (1994); Attias v. Carefirst, Inc., 865 F.3d 620, 625 (D.C. Cir. 2017). To present a justiciable case or controversy, the party invoking federal jurisdiction must demonstrate standing and ripeness, among other requirements. Kokkonen, 511 ...

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