United States: Marketplace Lending Update #6: Is The Fintech Charter The Solution? Don't Bank On It

Many have believed that the national bank "fintech charter" is an ideal solution to providing marketplace consumer loans on a 50-state basis.  A recent ruling from the Southern District of New York casts significant doubt on the viability of obtaining such a charter, at least in the near term.

In December 2016, the Office of the Comptroller of the Currency ("OCC") announced its intention to consider the chartering of special purpose national banks to financial technology companies that provide banking products and services.  Under the proposal, such "fintech charter" banks would not be required to operate as full service national banks and, importantly, would not be required to accept deposits, as long as they engage in activities considered by the OCC to be core activities within the "business of banking," such as lending and payment processing. 

The OCC's proposal resonated with the marketplace lending industry because national banks are not subject to certain state lending laws.  In particular, national banks are exempt from state licensing and examination requirements.1  National banks may "export" interest rates – as well as other lending features deemed "material to the determination of the interest rate" (such as balance-calculation methodology and certain fees, such as late fees) from the national bank's home state,2 all without regard to licensing, usury or other restrictions imposed by the law of any other state. 

These two powers – the immunity from state licensing and examination requirements and the ability to export interest rates – permit a national bank to lend to consumers seamlessly across all 50 states, without regard to the patchwork of state consumer-loan laws.  These two powers are particularly attractive to marketplace lenders because the higher rates charged by lenders can be problematic in a number of states unless a state license is obtained.  For those lenders, state licensing is no panacea:  obtaining such licenses can be a years-long process, and maintaining licenses in good standing across all 50 states can be costly and burdensome.  The national bank fintech charter also would serve as an alternative to the "bank-origination model" used by some marketplace lenders.  That term refers to the practice used by some marketplace lenders to partner with FDIC-insured state-chartered banks to originate loans on the marketplace lender's behalf,3 enabling the marketplace lender to obtain consumer loans without having to partner with – and share revenue with – a third-party bank.

When the OCC announced the proposed fintech charter concept in December 2016, the OCC stated that such a national bank would be subject to many requirements applicable to national banks today, but would not be required to accept deposits at all.  While such a nondepository fintech bank would be a national bank under the National Bank Act (and thus could claim immunity from state regulation and export interest rates), the nondepository fintech bank would not be a "bank" under the Bank Holding Company Act (the "BHC Act").  Under the BHC Act, a "bank" is defined as including either an (i) "insured bank" as defined in the Federal Deposit Insurance Act (i.e., a banking institution the deposits of which are FDIC-insured) or (ii) an institution that both accepts demand deposits and makes commercial loans.  A nondepository fintech national bank would arguably be neither and thus would not be a "bank" under the BHC Act. 

This was a critical factor for the marketplace lending industry.  The BHC Act requires a company that acquires control of a "bank" to register as a bank holding company and become subject to Federal Reserve supervision.  The BHC Act also imposes significant restrictions on bank holding companies and affiliates of banks, including restrictions on the activities in which they may engage, companies they may acquire, capital and liquidity requirements, anti-money laundering procedures, and the like.  As a result of the OCC's conclusion that a fintech charter national bank would not have to accept deposits, these requirements of the BHC Act would not apply to a fintech national bank and its parents and affiliates.  This would allow, for example, a fintech national bank to be controlled by a fund or by a company engaged in commercial activities.

The OCC invited comments on the proposed fintech charter concept from December 2016 through January 2017.  Over one hundred comment letters were received.  Many commenters applauded the proposal, agreeing with the OCC that permitting a fintech national bank facilitated innovative lending on a responsible basis and was necessary to keep pace with technological developments.  Others criticized the OCC's proposal, arguing that it would permit marketplace lenders to circumvent state laws designed to protect consumers from high rate loans and questionable lending practices.

In the spring of 2017, the OCC's proposal was challenged in two lawsuits – one brought by the Conference of State Bank Supervisors (the "CSBS"), and the other brought by the Superintendent of the New York Department of Financial Services (the "DFS").  Both lawsuits were dismissed over standing and ripeness concerns.4  Those dismissals, however, were based in part on the fact that the OCC had not yet decided whether to proceed with the fintech charter concept.

On July 31, 2018, the OCC formally announced that it would begin accepting fintech charter applications.5  The CSBS and the DFS promptly refiled their lawsuits.6  Both lawsuits sought to enjoin the OCC from proceeding with its proposal, arguing that the OCC's policy statement on fintech charters exceeded the OCC's authority under the National Bank Act because the Act does not permit the chartering of nondepository national banks.  The CSBS and the DFS also argued that Section 5.20(e)(1) of the OCC's regulations – which empowered the OCC to issue special purpose charters to any entity that engages in at least one of the "core activities" of either receiving deposits, paying checks, or lending money7 – exceeded the OCC's authority under the National Bank Act.8 

The OCC moved to dismiss both cases, arguing that the OCC's authority to permit fintech charter national banks was a reasonable interpretation of the National Bank Act by the OCC and was thus entitled to deference under Chevron U.S.A., Inc. v. National Resources Defense Council, Inc.9 ("Chevron").10  In Chevron, the Supreme Court set forth its now famous standard for judicial review of a federal agency's interpretation of the statute that it administers – one that defers to agencies' interpretations absent direct guidance from Congress:

When a court reviews an agency's construction of the statute which it administers, it is confronted with two questions. First, always, is the question whether Congress has directly spoken to the precise question at issue. If the intent of Congress is clear, that is the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress.  If, however, the court determines Congress has not directly addressed the precise question at issue, the court does not simply impose its own construction on the statute, as would be necessary in the absence of an administrative interpretation. Rather, if the statute is silent or ambiguous with respect to the specific issue, the question for the court is whether the agency's answer is based on a permissible construction of the statute.11

On May 2, 2019, the Southern District denied the OCC's motion to dismiss in the DFS lawsuit.12  With respect to the OCC's Chevron argument, the court ruled that the National Bank Act was not ambiguous, and thus the OCC's interpretation of the Act warranted no judicial deference.  The Court concluded that:

the [National Bank Act's] "business of banking" clause, read in the light of its plain language, history, and legislative context, unambiguously requires that, absent a statutory provision to the contrary, only depository institutions are eligible to receive national bank charters from OCC.13

The Court's order refusing to grant the motion to dismiss is seemingly fatal to the OCC's fintech charter proposal, at least insofar as the Southern District of New York is concerned.  By concluding that the National Bank Act unambiguously requires that only deposit-taking institutions may receive national bank charters, the Court's ruling goes to the very heart of the OCC's position – that is, that national bank fintech charters should also be available to entities engaged solely in nondepository activities, such as lending or payment processing.

At this point, it is unclear what the OCC's next steps will be.  The District Court for the District of Columbia has yet to rule on the OCC's motion to dismiss in the CSBS litigation, and that court may reach a different conclusion.

For the time being, therefore, it seems unlikely that the OCC will proceed with the processing of fintech charter applications for nondepository banks.  And even if the OCC does continue processing, applicants should be wary that any national bank charter received is of dubious legality unless and until the Second Circuit or Supreme Court sides with the OCC.  Thus, marketplace lenders have two avenues available to them:  assume the burden of state-by-state licensing, or rely on the "bank origination model" to originate receivables but with risk in some states – such as in Colorado – that the state may attempt to challenge the viability of that model.14


1   See 12 U.S.C. § 484 (referring to the statutory preemption of state "visitorial powers").

2   See 12 U.S.C. § 85. 

3   For a discussion of the bank origination model, see our Clients & Friends Memo, Marketplace Lending Update:  Who's My Lender? (Mar. 14, 2018).

4   See Conference of State Bank Supervisors v. Office of Comptroller of Currency, 313 F. Supp. 3d 285 (D.D.C. 2018); Vullo v. Office of Comptroller of Currency, No. 17 CIV. 3574 (NRB), 2017 WL 6512245 (S.D.N.Y. Dec. 12, 2017).

5   See Office of the Comptroller of the Currency, Policy Statement on Financial Technology Companies' Eligibility to Apply for National Bank Charters (July 31, 2018).

6   See Complaint for Declaratory and Injunctive Relief, Vullo v. Office of Comptroller of Currency et al., No. 1:18-cv-8377 (S.D.N.Y. Sept. 14, 2018), ECF No. 1; Complaint for Declaratory and Injunctive Relief, Conference of State Bank Supervisors v. Office of Comptroller of Currency et al., No. 1:18-cv-02449 (D.D.C. Oct. 25, 2018), ECF No. 1.

7   See 12 C.F.R. § 5.20(e)(1). 

8   In both cases, the plaintiffs also argued that the OCC's policy statement violated the Tenth Amendment to the U.S. Constitution.  In its litigation, CSBS also asserted that the OCC's policy statement violated the Administrative Procedures Act's procedural requirements and was arbitrary and capricious. 

9   467 U.S. 837 (1984).

10 The OCC also argued that the DFS lacked standing to litigate, that the dispute was unripe because the OCC had not yet issued such a charter, and that the challenge to Section 5.20(e) was time-barred given that the language in question had been promulgated in 2003.

11 467 U.S. 837 at 842-43 (footnotes omitted).

12 The Court rejected the OCC's arguments concerning ripeness and standing, although it agreed with the OCC that the DFS's count based on the Tenth Amendment failed to state a claim and thus dismissed that count of the DFS complaint. 

13 See Decision and Order, Vullo v. Office of the Comptroller of the Currency et al., No. 1:18-cv-8377 (S.D.N.Y. May 2, 2019), ECF No. 28.  The court noted in particular that the term "business of banking" is commonly understood to entail the taking of deposits, and that only two forms of nondepository national banks had been previously chartered by the OCC – trust banks and bankers banks – but that these two forms of nondepository banks had been specifically authorized by Congress pursuant to statute.  Furthermore, the Court expressed skepticism that Congress would have intended the OCC to grant fintech charters absent statutory approval, noting that the fintech proposal:

would entail federal preemption of the state banking regulatory scheme nationwide as it relates to such fintech entities. 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's 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 – essentially exercise of a legislative function by administrative agency fiat. . . .  Whether depository institutions can qualify as national banks appears to be "a question of deep 'economic and political significance' that is central to this statutory scheme," such that the Court infers that, because of its fundamental regulatory, legislative, and constitutional implications, "had Congress wished to assign that question to an agency, it surely would have done so expressly."

Id. at 46-47 (citations omitted).

14 For a discussion of Colorado's challenge to the bank origination model, see our prior Clients & Friends memo, Marketplace Lending Update #5: The Very Long Arm of Colorado Law (Apr. 24, 2019).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Hunton Andrews Kurth LLP
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Hunton Andrews Kurth LLP
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions