Ever since the Office of the Comptroller of the Currency (OCC) introduced the idea of a special charter for non-bank fintech companies, it has attracted a certain level of controversy.
- Traditional banks where not excited about fintechs having the option of a unique charter with less stringent requirements than a standard charter.
- State banking authorities felt their authority was being usurped by this federal charter. Today, many fintechs pursue money transmitter licenses in each state they do business in to support their activities. These licenses are controlled by state banking authorities. The Federal fintech charter provides the authority fintechs need to conduct business without having to apply for transmitter licenses in each state.
- Fintechs weren’t all that excited about the special charter either as the charter provided support for lending activities, but did not include a path for securing FDIC coverage of deposits.
The latest in the fintech charter story came this week when a federal court determined that the OCC does not have the authority to issue a charter for non-bank entities that cannot secure FDIC insurance. As explained in an article in the American Banker:
A federal judge dealt a blow to the Office of the Comptroller of Currency’s special-purpose fintech charter on Monday, ruling that the agency lacked legal power to grant a bank charter to a nonbank entity that wasn’t eligible for federal deposit insurance.
The OCC first proposed the charter in 2015 as a possible avenue for fintech firms to access the nationwide financial system without having be licensed in all 50 states.
The move was opposed by the Conference of State Bank Supervisors and the New York State Department of Financial Services, both of which filed lawsuits claiming the agency lacked the power to create a federal charter for nonbanks.
On Monday, the U.S. District Court for the Southern District of New York ruled in favor of the state regulator. Judge Victor Marrero said in his decision that the National Bank Act’s “business of banking” clause “unambiguously requires that, absent a statutory provision to the contrary, only depository institutions are eligible to receive national bank charters from the OCC,” according to the court filing.
The story isn’t over yet. The OCC has said it will appeal the decision.
Overview by Sarah Grotta, Director, Debit and Alternative Products Advisory Service at Mercator Advisory Group