New York defeats OCC in legal battle over bank charters

New York defeats OCC in legal battle over bank charters

The US Office of Comptroller of the Currency has suffered a potentially fatal setback in its attempts to offer banking charters to fintechs after a New York judge ruled that the agency was acting beyond its remit.

The federal court in Manhattan was responding to a law suit filed by the state's Department of Financial Services (NYDFS) in September, which asserted that allowing fintechs to apply for special national charters could enable online lenders, cryptocurrency exchanges and alternative payment firms to operate without the need for a banking partner.

The idea of special banking charters has long been opposed by both state regulators and the financial services industry. The NYDFS has had a running battle with the OCC over the issue.

While federal bodies such as the OCC have sought to create a more streamlined regulatory landscape for financial startups that avoids the state-by-state structure of US financial regulation, the incumbent institutions and state regulators disagree.

The court based its rulling on a clause in National Bank Act, which asserts that "only depository institutions are eligible to receive national bank charters from OCC”.

Superintendent of Financial Services Linda Lacewell welcomed the decision as a reinforcement of the precept that DFS and other state banking regulators have the expertise to provide the strict supervisory oversight and enforcement of anti-money laundering and consumer protection statutes and regulations that non-depository financial service providers are required to follow.

"The decision stops OCC’s attempt to usurp state authority by establishing a federal fintech regulatory framework at the expense of consumers," she says. "Going forward, DFS will continue to be a fierce advocate for consumers in New York and nationwide."

The OCC haas said that it will appeal the decision by the courts.

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