Four-Way Stalemate: Recent Developments in Regulatory Compliance for Fintech Companies and Marketplace Lenders

The OCC's Special Purpose National Bank Charter Suffers a Setback The OCC proposed offering an SPNB charter for fintech companies in December 2016, as discussed in a previous Annual Survey.1 Fintech companies that obtain such a charter can operate on a national basis without needing to comply with the licensing and usury requirements of each state and can also export their home state's interest rate.2 This would, in essence, allow a fintech firm to enjoy the benefits of a federal bank charter while also avoiding regulatory requirements such as the BHCA. State regulators, including the New York Department of Financial Services ("DFS") and the Conference of State Bank Supervisors ("CSBS"), opposed this action by the OCC.3 Arguing that the OCC had encroached on their regulatory authority and prerogatives, the DFS and the CSBS each filed lawsuits in early 2017 challenging the OCC's ability to offer the SPNB charter.4 The lawsuits argued that the OCC lacked authority under the National Bank Act ("NBA") and other federal laws to issue SPNBs to non-depository companies.5 The OCC succeeded in having these actions dismissed on standing and ripeness grounds because the agency had not yet begun taking applications for the program.6 In July 2018, however, the OCC announced that it would begin taking SPNB cations from firms that were engaged in at least one of three core banking functions: paying checks, lending money, and taking deposits.7 The DFS and the CSBS previously contended that a bank must perform all three of these functions to be considered in the "business of banking," not just one as the OCC claimed. NBA's command that the OCC determine whether an applicant for a national bank charter is lawfully entitled to commence the "business of banking" requires that applicants receive deposits as an aspect of the banking business.10 The court held that allowing the OCC to issue SPNB charters to non-depository fintech companies would cause a "dramatic disruption of federal-state relationships in the banking industry" such that the OCC likely exceeded its authority under the NBA, and thus the DFS had stated a claim-a striking defeat for the OCC.11 As a result of the court's ruling, the DFS and the OCC negotiated for several months regarding entry of final judgment against the OCC, and a final judgment was entered in October 2019.12 Adding to the uncertainty surrounding the SPNB charter, the district court in the parallel action brought by the CSBS dismissed the action