Pub. 12 2017-2018 Issue 5

WWW.NEBANKERS.ORG 14 Regardless of the outcome of any legal challenges or the OCC’s willingness to issue final rules on fintech charters, state regulators are preparing for a world without the fintech charter. Counselor’s Corner — continued from page 13 CSBS sued the OCC, claiming jurisdictional overreach by the OCC with regard to fintech charters. 12 On July 28, 2017, the OCC filed a motion in the DDC to dismiss the CSBS lawsuit arguing that the CSBS lacks standing to bring the case because the OCC has not yet decided whether it will make fintech charters avail- able to fintechs, and therefore “[n]o tangible effect on CSBS or CSBS’s members could even arguably occur until a [fintech] charter has been issued to a specific applicant." 13 For similar reasons, the OCC argued that the case was not ripe for judicial review. As of this writing, no decision on the dismissal motion has been announced by the DDC. In the NYDFS case, the OCC filed a similar motion to dismiss arguing that because it has not yet decided whether it will of- fer fintech charters to companies that do not take deposits, the NYDFS suit should be dismissed (i) for failing to establish any injury in fact necessary for Article III standing and (ii) because the case was not ripe for judicial review. On December 12, 2017, the SDNY dismissed the case “without prejudice” finding that the claims were not “ripe” and the NYDFS lacked standing to bring its suit since the OCC has not reached a final decision regarding whether to issue fintech charters. Because the SDNY dismissed the NYDFS suit on jurisdictional grounds and “with- out prejudice,” it is expected that the NYDFS will promptly refile its suit if the OCC finalizes its fintech charter proposal or issues a fintech charter. The SDNY agreed with both OCC arguments. As an initial matter, the court observed that the NYDFS’ claims were based on the premise that the OCC had decided to issue fintech charters. The court concluded, however, that the NYDFS failed to show that the OCC had decided. In reaching its conclusion, the court focused on statements made by former Acting Comptroller Keith Noreika indicating that the OCC was continuing to consider its fintech charter proposal but had not made a decision as to its ultimate position. The court also noted that, at the time of its decision, Joseph Otting, the new comptroller, had not yet taken a public position on the fintech charter proposal and whether he would continue to pursue the fintech charter remained uncertain. With regard to Article III standing, the court concluded that the injuries the NYDFS alleged “would only become suf- ficiently imminent to confer standing once the OCC makes a final determination that it will issue [fintech] charters to fintech companies." 14 Such alleged injuries included the potential for New York-licensed money transmitters to avoid New York’s regulatory requirements, stripping their customers of the protec- tions of New York law as well as the NYDFS’ loss of assessments levied on the NewYork-licensed financial institutions (that would obtain fintech charters), depriving the NYDFS of resources. Ac- cording to the court, in the absence of a decision to issue fintech charters, the NYDFS’ “purported injuries are too future-oriented and speculative to constitute an injury in fact.” As to ripeness, the court concluded that NYDFS’ claims were neither constitutionally nor prudentially ripe. According to the court, the claims were not constitutionally ripe for the same reason Article III standing was lacking—specifically, that the claims were not “actual or imminent” but were instead “conjec- tural or hypothetical.” The court also found that the claims were not prudentially ripe because they were contingent on future events that might never occur because the OCC might decide not to issue fintech charters. Future of Fintech Charters This is not a new battle, and very likely will be renewed with intensity if the OCC proceeds toward issuing a fintech charter. On December 20, 2017, new Comptroller of the Currency Joseph Otting confirmed that he supports the creation of fintech char- ters, “which would allow online lenders or payments processors to be regulated nationally, instead of following different laws in every state." 15 Otting explained that the retreat of banks from lending—particularly small-dollar loans—has created a vacuum that fintechs have stepped into, “and part of the regulatory re- sponse to the rise of fintech firms is to improve banks’ ability to compete in that arena." 16 “The question is, in some regards, why is this not JPMorgan [or] U.S. Bank being a fintech? So the question is, why is that [small-ticket lending] space vacated and . . . [have] we as a regu- latory body forced banks out of that space? So there’s a need to get it back in the banking system. I would hope that the banks would embrace that and come back in with their fintechmodels.” So where does it go from here? The DDC is yet to rule on the OCC’s motion to dismiss. The SDNY essentially said it would not entertain a challenge to the fintech charter until the OCC either grants such a charter or adopts final chartering rules and guid- ance. Former Acting Comptroller Keith Noreika, who was at the helm of the OCC when the SDNY and CSBS lawsuits were filed,