FinTech.

State bank regulators have sued the Office of the Comptroller of the Currency, challenging the national bank charter program for nondepository fintech companies and possibly delaying the federal alternative to a patchwork of state crypto  regulations.

The Conference of State Bank Supervisors (CSBS), an organization representing state bank regulators, filed a suit in the U.S. District Court for the District of Columbia Thursday which said fintech companies that do not take deposits and are not insured by the Federal Deposit Insurance Corporation should continue to be regulated at the state level.

The filed suit was signed by Baker McKenzie partner Jennifer Ancona Semko. A similar suit filed by CSBS earlier this year in an effort to prevent such a charter was tossed in May 2018.

Prior to July 2018, when the OCC began accepting applications for the program, fintech companies had to face a series of regulations that varied by state.

“Long before the OCC's interest in these companies manifested itself in the Nonbank Charter Program, nonbanks have unquestionably been subject to state regulatory authority and state law for many decades—including but not limited to licensing, examination and reporting requirements, usury laws, and a variety of other consumer protections, such as restrictions on product terms and unfair and deceptive practices, and requirements pertaining to disclosure, investments, and net worth,” CSBS said in the suit.

The national bank charter preempts those regulations and allows companies to operate throughout the U.S. under a standard federal regulation.

The OCC formally announced its interest in a national bank charter program for fintechs in December 2016, according to the suit, but that became uncertain following a period of leadership change. In 2018, the interest was reopened, potentially sparked by the surge of bitcoin prices in late 2017.

CSBS argued in its suit that the OCC does not have the authority to regulate nondepository fintech companies under the National Bank Act, which states the office should oversee companies engaging in the ”business of banking.” In Thursday's suit, the CSBS said it is “well settled by court precedent, federal banking laws, and historical chartering practice” that the business of banking “requires, at a minimum, engaging in receiving deposits.”

“Common sense and the law tell us that a nonbank is not a bank. Thus, CSBS is calling on the courts to stop the unlawful, unwarranted expansion of powers by the OCC,” said John Ryan, the president and CEO of CSBS in a statement.

In July, the OCC said in a policy statement that authority to grant national charters extends to “special purpose national banks” and that the business of banking refers to companies engaging in “any of the three core banking functions of receiving deposits, paying checks, or lending money.”

“While the OCC does not comment on litigation, the OCC is confident in its statutory authority to issue national bank charters, including special purpose charters, to companies engaged in the business of banking and that qualify,” an OCC spokesperson said of the latest CSBS suit on Friday.

It's not the first legal challenge against the OCC's national bank charter program for fintechs. In September, New York's Department of Financial Services filed a suit against the OCC in the U.S. District Court for the Southern District of New York.

The NYDFS suit also argued that the OCC had overstepped its authority by accepting applications from nondepository fintech companies and said the new charter “puts New York financial consumers—and often the most vulnerable ones—at great risk of exploitation by federally-chartered entities.”

In September, financial institutions lawyers said that NYDFS' suit could dissuade fintech companies who sought federal regulatory clarity from applying for the charter, as it's not yet clear that states will stop subjecting firms to their own regulations on top of those outlined in the national bank charter.

“Now that the DFS has sued the OCC, I think fintech companies are reluctant to invest resources into getting that charter because they won't know what the status of this pre-emption is,” Jeffrey Alberts, a Pryor Cashman partner who co-heads the firm's financial institutions group, told Corporate Counsel in September. “In essence, until the solution is resolved, they would be subject to regulation both by the OCC and by the states, and wouldn't know who ultimately was going to win.”