The U.S. District Court for the Southern District of New York denied the Office of the Comptroller of the Currency's ("OCC") motion to dismiss a lawsuit, brought by the New York State Department of Financial Services, that challenged the OCC's authority to issue "FinTech" charters under the National Bank Act. As explained more fully in a Cadwalader memorandum, this dismissal makes it unlikely that the OCC will proceed with the processing of FinTech charter applications for nondepository banks in the near term.
Commentary /Scott Cammarn
The Court's Order refusing to grant the motion to dismiss is seemingly fatal to the OCC's FinTech charter proposal, at least insofar as the Southern District of New York is concerned. By concluding that the National Bank Act unambiguously requires that only deposit-taking institutions may receive national bank charters, the Court's ruling goes to the very heart of the OCC's position - that is, that national bank FinTech charters should also be available to entities engaged solely in nondepository activities, such as lending or payment processing.
At this point, it is unclear what the OCC's next steps will be. The District Court for the District of Columbia has yet to rule on the OCC's motion to dismiss in the CSBS litigation, and that Court may reach a different conclusion.
For the time being, therefore, it seems unlikely that the OCC will proceed with the processing of FinTech charter applications for non-depository banks. Even if the OCC does continue processing, applicants should be wary that any national bank charter received is of dubious legality unless and until the Second Circuit or Supreme Court sides with the OCC. Thus, marketplace lenders have two avenues available to them: assume the burden of state-by-state licensing, or rely on the "bank origination model" to originate receivables, but with risk in some states - such as in Colorado - that the state may attempt to challenge the viability of that model.
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