The plan of OCC soon meets with a number of strong challenges.
First, the charters face conflicts with the Federal Reserve (“the Fed”). As the Fed only regulates depository banks, it will not regulate the “banks” under the Fintech Charters. Nevertheless, the fintech companies could still access the real-time payment system of the Fed, as they would be considered national banks with the grant of the SPNB. The charter would then pose a great threat to the regulatory power of the Fed, as well as the power of state regulators that control lending and payments for companies without national charters.
Second, there are issues over the principle included in the US banking law, which states that companies that own banks cannot control non-banking companies. This rule, however, would not apply to non-depository banks of the Fintech Charters. The worry that stems from this issue concerns the possible domination over the financial systems of the bigger fintechs who would receive the charters, such as Amazon and Facebook.
Lacewell v. OCC progress
The New York’s Department of Financial Services (“NYDFS”) in Lacewell disapproved of the OCC’s plan. According to their arguments, the OCC’s regulatory authority does not have the power to grant a charter to non-depository institutions.
The United States District Court for the Southern District of New York (“SDNY”) rejected the OCC’s decision to dismiss a suit by the New York State Department of Financial Services (“NYDFS”) and indicated the agreement that the OCC was exceeding its authority for attempting to issue Fintech Charters to non-depository fintech companies. This led to the decision of the OCC to file an appeal to the 2nd Circuit in Lacewell v. Office of the Comptroller of the Currency.
The result of the 2nd Circuit will hold significant impact for nonbank market participants. A ruling in favor of the OCC is likely to result in a major transformation of the regulatory landscape of the fintech industry. It is therefore important for fintech companies and legal organisations to closely pay attention to the progress of this ruling.