In the latest battle over the Office of the Comptroller of the Currency’s (OCC’s) plan to issue special purpose national bank (SPNB) charters, a D.C. federal judge has for a second time dismissed a lawsuit brought by the Conference of State Bank Supervisors (CSBS).
The decision creates the potential for circuit split, as a New York federal court reached the opposite conclusion in a nearly identical action filed by the state’s Department of Financial Services (DFS).
What happened
The dispute between the OCC and state regulatory agencies traces back to 2016, when the OCC first announced that it would consider applications from fintech companies to obtain SPNB charters, allowing them to originate loans, pay checks (or their modern-day equivalent, electronic funds transmission) and access the payment system directly without having to rely on third-party banks.
After accepting comments on the proposal and publishing draft licensing standards in March 2017, the CSBS and the DFS sued the OCC to challenge the plan. But both lawsuits (DFS I, CSBS I) were dismissed as unripe because they failed to demonstrate actual or imminent harm and were premature for judicial review. That all changed in July 2018 when the OCC announced it would accept applications for the SPNB charters, and both the DFS and the CSBS refiled their actions (DFS II, CSBS II).
Earlier this year, the federal court in New York surprised the industry by not only refusing to dismiss DFS II but also taking favorable views on legal positions asserted by DFS in its complaint.
But in CSBS II, U.S. District Judge Dabney L. Friedrich has sided with the OCC, ruling that “CSBS continues to lack standing and its claims remain unripe.”
“Not much has happened since CSBS I that affects the jurisdictional analysis,” the court wrote. The CSBS highlighted two events to back its claims: the confirmation of Joseph Otting as Comptroller of the Currency and the OCC’s finalization of its policy to charter fintechs, but the court said neither of these was sufficient to keep the dispute in court.
“[B]ecause neither event ‘cure[s] the original jurisdictional deficiency’ identified in CSBS I[,] ‘[i]ssue preclusion bars [the court] from reconsidering whether [CSBS] suffered Article III injury,’” the court said.
CSBS also failed to successfully plead an injury in fact that was either actual or imminent, because each of the alleged harms is contingent on whether the OCC charters a fintech company, which has yet to occur, Judge Friedrich concluded. In addition, the court found, the CSBS II complaint again failed to identify which particular member of the organization faces imminent injury.
Unless and until a fintech company applies for a charter, the “CSBS can only guess which states and which members face imminent injury,” the court said. “The bottom line is that despite the now-final policy and the Comptroller’s confirmation, CSBS still fails to ‘carry its burden’ of ‘demonstrat[ing] that it has standing to survive a Rule 12(b)(1) motion’ for nearly all the same reasons as before.”
The court acknowledged the ruling in DFS II, but Judge Friedrich “respectfully disagree[d]” with the decision “to the extent that its reasoning conflicts with either this opinion or CSBS I.”
To read the opinion in CSBS v. OCC, click here.
Why it matters
Despite the continuing litigation in New York—which is likely headed to the U.S. Court of Appeals for the Second Circuit—this latest victory for the OCC could encourage the agency to continue to move forward with its plans to grant SPNB charters to fintech companies. The ultimate challenge, however, is that even if the authority of the OCC to grant SPNB charters is resolved favorably by the courts, until a fintech applicant is bold enough to submit an application for an SPNB charter, the value of such charter will remain unknown and untested.