Banking

New lawsuit from states over OCC power targets Figure application

The Conference of State Bank Supervisors is escalating its multi-year fight with the Office of the Comptroller of Currency over the agency’s aim to grant charters to fintech firms.

The group filed a complaint in the U.S. District Court for the District of Columbia against the OCC opposing the unique charter application by Figure Technologies, a San Francisco-based fintech.

CSBS’s complaint argues that Figure’s bid to open a bank not accepting federally insured deposits is “merely a thinly veiled effort” to avoid the legal controversy surrounding the OCC’s special-purpose fintech charter, which has been mired in court challenges ever since it was introduced.

“Since Figure intends to carry on the banking business without obtaining FDIC insurance, Figure has applied for a Nonbank Charter,” the group said in the complaint, which was filed Tuesday.

The special-purpose fintech charter was first announced by the OCC in 2016, but no firm has officially applied for it. It would allow nondepository fintech companies to operate under a federal charter overseen by the OCC without the burdens of state regulation and licensing. The New York State Department of Financial Services challenged the validity of the proposed charter in court last year and won. The OCC filed an appeal in April.

“[Figure’s] plan to become a national bank without obtaining deposit insurance is an illegitimate attempt to evade the controversy surrounding the fintech charter and the federal court decision that invalidated it,” said John Ryan, president and CEO of the Conference of State Bank Supervisors.

The CSBS says in its complaint that the OCC has gone beyond its legal authority to charter institutions that carry on the “business of banking,” which require an institution to receive deposits and obtain insurance from the Federal Deposit Insurance Corp. The group continues to maintain that states do a better job of regulating fintechs than national agencies.

Figure, which currently offers home equity lines of credit and mortgage refinance loans, plans to take uninsured deposits of more than $250,000 rather than FDIC-insured deposits. Since 2018, Figure has been supervised by state regulators as a mortgage lender, consumer lender or debt collector in 49 states and the District of Columbia.

Because Figure will not seek deposit insurance, the CSBS considers its charter application to be, in essence, for the fintech charter.

“Now, working closely with the OCC and Acting Comptroller Brooks, Figure is on the verge of obtaining a nonbank charter that it asserts will permit it to carry on these same activities without any state licensure or regulatory oversight,” the CSBS said in its complaint.

If successful, industry insiders see it as an opening for tech companies to get national bank charters from the OCC.

Figure’s “plan to become a national bank without obtaining deposit insurance is an illegitimate attempt to evade the controversy surrounding the fintech charter and the federal court decision that invalidated it,” John Ryan, president and CEO of the bank supervisor group, said in a press release. “If the OCC is allowed to create a special purpose nonbank charter, it would redefine our entire banking system, create new systemic risks and set a dangerous precedent that any federal agency can act beyond its legal limits.”

The CSBS has sued the agency twice in recent years over the special-purpose fintech charter, but both times the case was thrown out because no firms have yet received a charter.



 

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