CSBS takes OCC to court over nonbank charter plan

The controversy over the U.S. Office of the Comptroller of the Currency's proposal to create a new charter for nonbanks is drawing heat from bank regulators. On April 26, 2017, the Conference of State Bank Supervisors filed a complaint in the United States District Court for the District of Columbia against the OCC. The CSBS wants to stop the OCC from moving forward with what it believes is an unlawful attempt to create a national nonbank charter that will harm markets, innovation and consumers.

The CSBS is the national organization of bank regulators from all 50 states, American Samoa, District of Columbia, Guam, Puerto Rico and U.S. Virgin Islands. “The OCC’s action is an unprecedented, unlawful expansion of the chartering authority given to it by Congress for national banks," said John W. Ryan, CSBS President and Chief Executive Officer. "If Congress had intended it to be used for another purpose, it would have explicitly authorized the OCC to do so."

Agency overstepping

According to the CSBS, the complaint asserts that "by creating a national bank charter for nonbank companies, the OCC has gone far beyond the limited authority granted to it by Congress under the National Bank Act and other federal banking laws. Those laws authorize the OCC to only charter institutions that engage in the 'business of banking,' which under the National Bank Act requires an institution, at minimum, to receive deposits. Yet the OCC is attempting to create a new special purpose charter for nonbank companies that do not take deposits, without express statutory authorization. The OCC does not have the authority to create a special purpose charter for nonbanks without specific congressional approval."

Ryan further noted that if the OCC is allowed to proceed with the creation of a special purpose nonbank charter it will "set a dangerous precedent that any federal agency can act beyond the legal limits of its authority. We are confident that we will prevail on the merits. … The OCC’s proposed action ignores Congress, seeks to preempt state consumer protection laws, harms markets and innovation, and puts taxpayers at risk of inevitable fintech failures. This is a dangerous combination and one the court should decisively halt. To protect consumers and taxpayers, to promote innovation, and to ensure fair and open competition, CSBS was forced to take legal action against the OCC charter.”

CSBS on the job

Additionally, Ryan pointed out that state regulators already supervise a vibrant financial services marketplace that includes nonbanks and banks. State regulators supervise roughly three-quarters of all U.S. banks and a variety of non-depository financial services. CSBS, on behalf of state regulators, also operates the Nationwide Multistate Licensing System to license and register non-depository financial service providers in the mortgage, money services businesses, consumer finance and debt industries.

"Tens of thousands of mortgage, money transmission, debt collection and consumer finance companies – not to mention over 75 percent of this nation's banks ‒ already operate under the state system,” Ryan said. “That regulatory structure has produced a robust platform for innovation. Moving forward, state regulators will continue to streamline regulation and automate licensing across state lines, ensuring the system will work even better for state-licensed companies and consumers while protecting taxpayers.”

The CSBS complaint, with exhibits, is available at bankcsbs.files.wordpress.com/2017/04/csbs-occ-complaint-final.pdf .

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