Bank Wars Episode VII: The Courts Awaken (Part Two)

In part one of Episode VII I discussed the Office of the Comptroller of the Currency’s (OCC) argument that the Conference of State Bank…

In part one of Episode VII I discussed the Office of the Comptroller of the Currency’s (OCC) argument that the Conference of State Bank Supervisors (CSBS) was premature in challenging the OCC’s non-depository fintech charter because the OCC had not actually done anything for which it could be sued. I also discussed the OCC’s argument that the CSBS was too late to challenge the facial validity of the rule underlying the possible fintech charter because the statute of limitations on such challenges had run. Both of these arguments had something in common — if the court accepted them, then it could dismiss the case without having to decide if the OCC actually had the authority to issue fintech charters. This would not prevent the CSBS from bringing suit again if and when the OCC actually did something final — like issue a charter — but it would at least stop the litigation for now.

The main thrust of the OCC’s argument is that the CSBS lacks standing to sue. However, the OCC also challenges the CSBS’s argument that the OCC lacks the authority to issue a non-depository fintech charter. The OCC’s substantive argument primarily relies on the idea that courts must defer to the OCC’s interpretation of the meaning of “[the] business of banking” in the National Bank Act (NBA). This is vital because the OCC relied on its view of what constitutes the “business of banking” to define “core banking functions” as receiving deposits, paying checks, or lending money in 12 CFR 5.20(e)(1). This regulation serves as the basis for the non-depository fintech charter.

The primary thrust of the OCC’s substantive argument is that the definition of the “business of banking” under the NBA allows the OCC to be flexible in granting charters as the banking industry evolves. While the NBA does not say that explicitly, the OCC asks the court to trust the OCC’s interpretation of the statute under the doctrine of Chevron deference. Under Chevron (to dramatically oversimplify), courts defer to any reasonable interpretation of an ambiguous statute by the regulatory agency responsible for administering the statute.

For Chevron deference to apply, there must be ambiguity to the relevant statutory provision. The OCC argues that the definition of “business of banking” in the NBA is ambiguous. First, the OCC points out that the CSBS has acknowledged in its complaint (¶ 31) that the NBA does not expressly define “business of banking.” The OCC agrees and argues that the NBA does not list any mandatory activities that are necessary to constitute the “business of banking”. The OCC points to prior Supreme Court and DC Circuit precedent in which courts deferred to the OCC’s interpretation of an element of the definition of “business of banking” for the proposition that the court should grant the OCC’s interpretation deference this time as well.

But getting the court to agree the term is ambiguous is only half the battle. The court also needs to agree that the OCC’s position that the “business of banking” can include non-depository institutions is reasonable. The CSBS attacked the OCC’s interpretation as unreasonable on legal and policy grounds, arguing that Congress did not intend to grant the OCC the authority to charter non-depository fintech banks and that such a charter would harm the public.

The OCC counters by arguing that it looked to the NBA itself and Supreme Court precedent when it established deposit taking, money transmission, or lending as the core banking functions in 12 CFR 5.20(e)(1). Because the OCC’s definition is grounded in the law and binding precedent, the OCC argues it is a reasonable interpretation.

The CSBS argued that Congress, by granting the OCC the right to issue certain specific special purpose charters, withheld the authority to issue all other types of special purpose charters. This doctrine is known as expressio unius est exclusio alterius (the expression of one thing is the exclusion of another).

The OCC pushes back on the idea that the court should adopt this method of statutory analysis. The OCC first argues that the relevant section of the NBA is not written in a way that indicates Congress intended to withhold authority, and that because the section has been amended by multiple Congresses over time there is no way to assess the relevant Congressional intent from its structure. The OCC also argues that whether expressio unius is appropriate is a statute specific question, so analogizing to other statutes, as the CSBS did, is unavailing. Finally, the OCC argues that expressio unius is inappropriate in the administrative law context because of there is an assumption that Congress intended to delegate details to the relevant agency.

The OCC also counters the CSBS arguments that since other banking statutes define banking as requiring deposit-taking, the NBA must as well. The OCC argues that other banking statutes may consider deposit-taking an inherent part of banking for reasons not relevant under the NBA, and therefore do not indicate the meaning in the context of the NBA. (That sounds familiar).

The OCC contends that the district court cases cited by the CSBS for the proposition that deposit taking is an essential part of banking are neither binding precedent nor persuasive. These cases were either overturned by statute (which could be interpreted as a congressional endorsement of the OCC’s position), were not a final judgement, and/or are in conflict with subsequent binding precedent.

The OCC then turns to the historical argument. The CSBS maintains that historically deposit taking was considered to be an essential component of banking. The CSBS cited two Supreme Court cases in support. The OCC argues that those cases, which occurred in the tax and anti-trust contexts, do not seek to answer the question of whether deposit taking was required. (That also sounds familiar.)

Going on the historical offensive, the OCC argues that while the NBA’s text does not shed light on what “business of banking” means, near contemporaneous legislation passed in 1866 defined bank to include various non-deposit taking firms. The OCC also points to an 1872 Supreme Court case for the proposition that any institution that is able to take deposits, lend, or transfer money, even if it is only allowed to do one of those functions, is a bank.

Finally, the OCC turns to the CSBS’s 10th Amendment argument. Predictably, the OCC says that there is no 10th Amendment violation. Because federal law authorizes the OCC to issue fintech charters, the OCC is allowed to preempt state law in connection with such charters pursuant to the Commerce and Necessary and Proper clauses of the United States Constitution.

The OCC brief does not fully engage with the CSBS’s policy arguments on how a non-depository fintech charter would harm the public (though Acting Comptroller Noreika did touch on those in his recent speech). This is likely due to page limits and the fact that winning on the law is enough, but I’m sure we will see the OCC deal with those issues more fully later.

There is a lot to parse through in the OCC’s response. I’m sure the CSBS lawyers are doing that right now, so they are ready for the next phase of Bank Wars.