FinTech Charter Hits Speed Bump

The suit can proceed.

The news came Thursday (May 2) that, per a ruling in federal court in New York, the State Department of Financial Services can move forward with a suit that looks to derail national bank charters for FinTech companies.

Judge Victor Marrero, presiding over the U.S. District Court for the Southern District of New York, said the case can proceed, a ruling that denied a dismissal of the suit requested by the Office of the Comptroller of the Currency (OCC).

The New York department had argued that the OCC had stepped beyond its regulatory authority (and is misinterpreting the National Bank Act) when it had offered the “special purpose” charter in the middle of last year.

The judge ruled that “such dramatic disruption of federal state relationships in the banking industry occasioned by a federal regulatory agency lends weight to the argument that it represents exercise of authority that exceeds what Congress may have contemplated in passing the NBA. Indeed, if DFS’ characterization of the impact is accurate – which the Court assumes, given the posture of this order … the OCC’s reading is not so much an ‘interpretation’ as ‘a fundamental revision’ of the NBA.”

The national licenses would let FinTechs lend money and paychecks to consumers.

Separately, in news germane to the OCC, it has opened up a 45-day public comment period on a proposed Innovation Pilot Program encouraging banks to participate in pilots spanning as long as 24 months. It would allow banks to offer regulatory impact on innovations that include some tech-driven initiatives. The pilot program is distinct from a sandbox approach, where pilots tied to innovation get regulatory waivers.

Separately, the Reserve Bank of India late last week said it has fined Yes Bank as much as 11.25 lakh (roughly $1.6 million USD) as a penalty under the Payment and Settlement Systems Act of 2007. The penalty was levied in the wake of violations that involved the “issuance and operation of prepaid payment instruments in connection with certain product features of an open loop prepaid card (co-branded) previously issued by the bank,” according to Yes Bank. The prepaid product had been launched as a pilot program in September of 2017 and was discontinued in March of last year.

In the U.K., the Bank of England said, through Dave Ramsden, deputy governor who oversees FinTech, that the bank is monitoring the sector to ensure the tech upstarts do not move into shadow banking.

As has been widely reported, shadow banking is an unregulated space, and the deputy said it is important to analyze “the implications of any such migrations for financial stability as well as the impact on, and strategic response of, the banks and insurers that we supervise through the PRA [Prudential Regulation Authority]. This will be an important area of work for the FinTech hub, working with supervisory colleagues in the PRA, in the coming months,” he said, according to Yahoo Finance.