The U.S. Court of Appeals for the 2nd Circuit held oral argument previous 7 days in the OCC’s attractiveness from the district court’s closing judgment in the lawsuit filed by the New York Office of Fiscal Companies (DFS) seeking to block the OCC’s issuance of unique intent national bank (SPNB) charters to non-depository fintech organizations.
In July 2018, the OCC issued a coverage statement confirming that it would start out accepting programs for SPNB charters from non-depository fintechs, together with a complement to its licensing handbook describing its application and determination approach for fintechs. In its lawsuit, the NYDFS alleged that the OCC does not have authority under the Countrywide Lender Act (NBA) to charter non-depository businesses due to the fact such companies are not engaged in the “business of banking” as that time period is employed in the Countrywide Bank Act (NBA). The OCC moved to dismiss the criticism, arguing that the DFS did not have standing because it could not demonstrate that it has suffered an “injury in fact” considering that no actual, imminent injury existed. In accordance to the OCC, DFS’s claims ended up entirely speculative mainly because they count on a chain of events that had not happened and might by no means happen, namely the OCC’s receipt and acceptance of an SPNB charter software from a non-depository fintech that intends to perform company in New York and the graduation of small business in New York by this sort of fintech in a method that will cause the harms discovered by DFS (these kinds of as lost revenues).
The OCC also argued that the NBA and 12 C.F.R. § 5.20(e)(1) does give it authority to difficulty SPNB charters to non-depository businesses. Portion 5.20(e)(1) presents in section:
The OCC charters a countrywide bank under the authority of the Nationwide Bank Act of 1864, as amended, 12 U.S.C. 1 et seq. The bank may possibly be a particular purpose lender that restrictions its activities to fiduciary actions or to any other functions in just the company of banking. A special purpose financial institution that conducts routines other than fiduciary activities should carry out at least just one of the following three core banking features: Acquiring deposits shelling out checks or lending funds.
According to the OCC, simply because the term “business of banking” in the NBA is ambiguous, the 2nd phase of Chevron deference assessment needed the court to consider irrespective of whether its interpretation in § 5.20(e)(1) was sensible, and if found to be reasonable, to give its interpretation judicial deference.
Just after locating that the DFS experienced standing to file its lawsuit, the district courtroom concluded that the term “business of banking” as utilised in the NBA “read in the mild of its simple language, background, and legislative context, unambiguously needs that, absent a statutory provision to the opposite, only depository establishments are qualified to receive national bank charters.” Having concluded that the NBA’s text is unambiguous, the district court did not get to the second phase of Chevron deference examination and denied the OCC’s motion to dismiss. Subsequently, with the OCC’s and DFS’s consent, the district court docket entered a last judgment towards the OCC in October 2019, therefore enabling the OCC to file its attractiveness.
The associates of the Second Circuit panel hearing the oral argument had been Judges Pierre N. Leval, Gerard E. Lynch, and Joseph F. Bianco. Both of those Judge Leval and Decide Lynch have Senior position.
Based on the oral argument, it would not be stunning if the panel decides that the DFS does not have standing or remands the circumstance to the district courtroom for discovery relevant to standing. None of the panel associates appeared to have shaped any clear sights on the merits of the scenario. Nevertheless, the panel seemed troubled that neither the DFS nor the OCC could clearly describe the kinds of “fintech companies” that may possibly receive SPNB charters. Also, although the OCC asserted in guidance of its standing argument that it has not yet acknowledged an application from a non-depository fintech for an SPNB charter, the panel appeared receptive to DFS’s suggestion that the OCC has been informally vetting potential applicants and that a prospective applicant could make sizeable progress to acceptance even without the submitting of a formal application. The panel questioned why discovery relating to the OCC’s interactions with likely candidates had not taken location.
When the OCC filed its motion to dismiss, we located it a little bit puzzling why the OCC experienced determined to devote so much focus to the standing argument. Provided that the district court’s selection, except if reversed, would go on to be a cloud that deters the filing of SPNB constitution purposes, it seemed to be in the fascination of all concerned for the Next Circuit to concern a decision that resolves the issue on the merits. Even so, presented that a new Comptroller appointed by President Biden may be extra receptive to the views of DFS and other state regulators opposed to the SPNB constitution, a choice from the Next Circuit based mostly on standing could now be preferable for the OCC. Indeed, even if the Next Circuit reaches the deserves and concludes that the OCC does have authority to challenge SPNB charters to non-depository fintechs, a new Comptroller could possibly reverse system and make your mind up not to use that authority.