Mortgage Daily

Published On: October 25, 2018

A second lawsuit has been filed against the Office of the Comptroller of the Currency alleging that a new OCC charter for non-banks violates federal laws and procedures. But the OCC is confident in its authority.

In April 2017, the Conference of State Bank Supervisors filed a complaint in U.S. District Court for the District of Columbia against the OCC, the regulator for national banks.

The CSBS, a national organization of state bank regulators, was challenging an OCC decision to create a new special-purpose national bank charter for financial technology and other non-bank firms.

According to the prior lawsuit, the OCC has reported that such non-bank entities number more than 4,000.

State regulators alleged in the lawsuit that the OCC acted beyond its statutory authority in violation of the
National Bank Act and the Administrative Procedure Act. The federal banking regulator was also accused of bypassing proper notice-and-comment procedures.

The CSBS said that after it filed last year’s lawsuit, the OCC
announced that it had not yet determined whether it would move forward with the new charter. As a result, the court decided that the issue was not ready for consideration and dismissed the complaint.

But in July, the OCC issued a notice, NR 2018-74, indicating that it will begin accepting applications for national bank charters from non-depository financial technology companies engaged in the business of banking.

“The decision to consider applications for special purpose national bank charters from innovative companies helps provide more choices to consumers and businesses, and creates greater opportunity for companies that want to provide banking services in America,” Comptroller of the Currency Joseph M. Otting said in the notice. “Companies that provide banking services in innovative ways deserve the opportunity to pursue that business on a national scale as a federally chartered, regulated bank.”

The move prompted state regulators to file a new complaint against the OCC on Thursday in the same venue.

In a written statement, CSBC President and Chief Executive Officer John Ryan explained that Congress has not granted the OCC authority to award bank charters to non-banks and the OCC’s “unlawful, unwarranted expansion of powers” needs to be stopped.

“The OCC is playing the role of an industrial planner that picks winners and losers, makes consumers vulnerable to predatory actors who do not have to follow state consumer protections, and creates a new risk to taxpayers: failed fintechs seeking bailouts,” Ryan stated. “Lest we forget, in the early 2000s the OCC enabled national banks to ignore state predatory lending laws, a move that contributed to the U.S. financial crisis and the largest number of home foreclosures since the Great Depression.

“History cannot be allowed to repeat itself.”

Shortly after the publication of this story, an OCC spokesman issued a written statement indicating that although it doesn’t comment on litigation, it is confident in its statutory authority to issue national bank charters. This includes special purpose charters for qualified companies engaged in the business of banking.

“Contrary to the misleading claims by the Conference of State Bank Supervisors president and CEO in his news release that have nothing to do with the legal authority to issue such charters, it is incorrect to assume that state consumer protection laws cease to apply when a company becomes a national bank,” the statement said. “State laws that address anti-discrimination, fair lending, debt collection, taxation, zoning, crime and torts all generally apply to national banks and would also apply to special purpose national banks. Additionally, state laws that prohibit unfair or deceptive acts or practices that address concerns such as material misrepresentations and omissions about products and services in billing, disclosure and marketing materials also generally apply to national banks.  Mr. Ryan also ignores the role of state supervision in predatory lending and the fact that the majority of loans that contributed to the foreclosure crisis originated from state-licensed brokers and lenders outside the federal banking system.”

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