New York’s federal district court ruled that the U.S. Office of the Comptroller of the Currency (OCC) does not have the power to grant national charters to financial technology (FinTech) companies, The Wall Street Journal reported on Tuesday (Oct. 22).
The decision is a victory for state financial regulators wanting to block the OCC from issuing licenses, but is also a setback for the administration of President Trump, who strived to find alternatives to traditional banking.
The rise of FinTech firms, which have no federal charters, has stemmed largely from state licenses and mainstream banking partnerships. The OCC started issuing licenses to FinTechs around 2017, but state regulators have challenged the practice in hopes of keeping state control over consumer protection.
The court decision on Monday (Oct. 21) “stops OCC’s attempt to usurp state authority by establishing a federal FinTech regulatory framework at the expense of consumers,” Linda Lacewell, New York’s superintendent of financial services, told WSJ. Lacewell is the plaintiff in the latest case at the U.S. District Court for the Southern District of New York.
The ruling focused on the definition of a bank, and comes at a time when FinTech companies are branching out to offer banking services such as mortgages and small business loans.
“The agency disagrees with the decision and the court’s interpretation of the authority the National Bank Act grants the OCC,” an OCC spokesperson told the news outlet. He added that it will appeal the ruling, pointing to an 1863 law that established a national banking system.
The New York judge said the banking law, “read in the light of its plain language, history and legislative context, unambiguously requires that … only depository institutions are eligible to receive national bank charters from OCC.”
An increasing number of banks are swapping their own regulators in exchange for oversight by the OCC. Financial institutions in the U.S. can choose either state or federal oversight, although it is more common to switch from federal supervision to the more accessible state regulators. The OCC serves as the national bank regulator.