New York State Regulator Suing OCC Over FinTech Charters
Just over a month after the Office of the Comptroller of the Currency began accepting applications from FinTech firms to become Special Purpose National Banks, one state regulator is now suing the federal government in hopes of halting those charters. Reuters reports that New York has filed a lawsuit suggesting that the FinTech charters are unconstitutional and in violation of the 10th amendment. The suit also accuses the OCC of overstepping the authority granted to them under the National Bank Act.
New York Department of Financial Services superintendent Maria Vullo said the OCC’s move to allow for FinTech bank charters is “lawless, ill-conceived, and destabilizing of financial markets.” She went on to argue that New York regulators could do a better job of protecting consumers than the OCC, saying the decision put the public “at great risk of exploitation.” Vullo also warned that the charters could create more “too big to fail” institutions that would unfairly make it more difficult for smaller local banks to compete effectively. In summation, she stated, “The OCC’s reckless folly should be stopped.”
Despite these strong words, OCC spokesman Bryan Hubbard told Reuters that the agency is standing by its decision to allow FinTech charters. He added that the OCC had the authority to grant national charters to qualified companies, including those that are “engaged in the business of banking.” Similarly, in announcing the new charters, the agency wrote, “FinTech companies that apply and qualify for, and receive, special purpose national bank charters will be supervised like similarly situated national banks, to include capital, liquidity, and financial inclusion commitments as appropriate.”
It’s also worth noting that the OCC’s decision to allow for FinTech charters wasn’t an overnight development but was in consideration for more than a year. Proponents of the decisions argued that the charters were a necessary step as the previous state-by-state regulatory patchwork was hindering innovation. For example, in a report by the Treasury Department regarding the idea of FinTech charters, Secretary Steven Mnuchin wrote, “American innovation is a cornerstone of a healthy U.S. economy. Creating a regulatory environment that supports responsible innovation is crucial for economic growth and success, particularly in the financial sector. America is a leader in innovation. We must keep pace with industry changes and encourage financial ingenuity to foster the nation’s vibrant financial services and technology sectors.”
While this lawsuit could certainly hinder the prospects of the Special Purpose National Bank charters, its filing is not necessarily such a surprise. In fact, Vullo has been an outspoken critic of the OCC decision since the beginning, saying in a statement earlier this year that it was “clearly not authorized under the National Bank Act…[and] will impose an entirely unjustified federal regulatory scheme on an already fully functional and deeply rooted state regulatory landscape.” Obviously there are many parties who will be watching Vullo v. Office of the Comptroller of the Currency et al as the future of FinTech remains in limbo.