The Conference of State Bank Supervisors (CSBS) has filed a lawsuit against the Office of the Comptroller of the Currency (OCC), as well as Acting Comptroller Brian Brooks, regarding the agency’s ability to issue federal bank charters to Fintechs. The complaint mentions Figure Technologies, a blockchain-based Fintech in the lending sector, specifically.
The CSBS is the national organization representing bank regulators from all 50 states.
John W. Ryan, CEO and President of the CSBS, issued the following statement on the lawsuit:
“Figure is essentially the first applicant for the OCC’s Fintech charter. Its 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. 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. We believe that the court will share our concern and rule against the OCC’s unlawful attempts to expand its authority.”
This isn’t the first time the CSBS has attempted to stifle Fintech innovation but is a continuation of an earlier legal challenge by the CSBS stemming back from 2017. That lawsuit was eventually tossed from the court and then refiled again the following year.
The CSBS claims that by creating a national bank charter for nonbank companies, the OCC is going beyond the authority granted to it by Congress under the National Bank Act and other federal banking laws.
Figure Technologies, a Fintech startup created by Mike Cagney, wrote earlier this month why it was pursuing a national bank charter. Figure stated:
“We applied for an Office of the Comptroller of the Currency (OCC) national bank charter in November to expand on our blockchain applications. We believe blockchain can level the financial playing field for consumers (banked vs. underbanked), businesses (large vs. small) and financial institutions (large vs. small). The OCC charter provides a way for us to deliver sustainable, inclusive, and impactful financial solutions on Provenance that is not possible through our current state licensing.”
Figure comments on the current regulatory environment where it must manage compliance challenges in every state where it operates. Currently, Figure reports over 100 state licenses that support its operations of providing financial services to consumers. In 2021, Figure is planning to launch “Figure Pay” said to be an affordable, comprehensive banking solution to anyone who needs it – especially underbanked consumers. Figure Pay will be able to provide credit to credit-challenged customers, serving a market in need of financial services.
So is the CSBS legal challenge about saving consumers and small businesses from Fintechs? Not so much. Figure, like other Fintechs, want to be regulated and held to a high level of compliance. They just do not want to duplicate the process 50+ times – a repetitive and costly endeavor. Of course, allowing Fintechs to pursue a national charter would diminish the need for all of those state bank regulators.