Wednesday, August 19, 2020
As I shared last week (here), many of us who study banking law and regulation are watching the path of Lacewell v. Office of the Comptroller of the Currency (OCC), a case about the OCC’s power to grant federal fintech charters to nondepository institutions, that is in the Second Circuit Court of Appeals. We've been treated to dueling banking law prof amicus curiae briefs (additional amicus briefs were also filed). In this week’s post, I’ll highlight the brief written by Professor David Zaring at the Wharton School. Download Zaring_Brief
Zaring has previously written about OCC chartering practices (here). He argues that “the OCC has the authority to issue special purpose national bank charters for financial technology (fintech) companies pursuant to the National Bank Act and 12 C.F.R. §5.20(e)(1).” Hence, the District Court’s judgement should be reversed.
First, as Zaring notes, the core issue here really is: “what is banking?” He argues that the “the business of banking” is “susceptible to more than one meaning,” and that receipt of deposits is not an essential aspect of what it is to be a bank. The plain text of 12 C.F.R. §5.20(e)(1) “allow[s] national banks to obtain an SPNB [special purpose national bank] charter so long as they conduct at least one of three enumerated functions-(1) receive deposits, (2) pay checks, or (3) lend money.” Second, the OCC has a history of taking a cautious, “reasoned approach to charters,” and it “is not trying to hide an elephant in a mousehole or expand the definition of the ‘business of banking’ out of all recognition…” Indeed, Zaring asserts, “the agency’s past practice with special charters illustrates its caution.” Third, it’s costly and unwise to require online fintech firms “to tailor their businesses by state borders,” because of the U.S.’s dual banking system. “Few industries benefit more from regulation at the national level than industries that exist on the internet.” Fourth, the lack of a federal fintech charter is costly to the U.S. in terms of “investment in financial technology,” and international competitiveness in this arena. Finally, the OCC’s “chartering decisions are reviewable,” and, “if appropriate,” the “Court should clarify” this.
Zaring does an excellent job of explaining why the OCC has the authority to grant federal fintech charters to nondepository institutions, and I encourage BLPB readers to review his brief. As I previously noted, the answer to what might seem to be a technical banking law question of interest to few (and perhaps uninteresting to most) will have tremendous practical ramifications.
Stay tuned for Part III! I’ll plan to update BLPB readers when the Second Circuit Court of Appeals issues its decision.