Bank Wars Episode VIII-A: The Empire State Strikes Back (again)

The New York Department of Financial Services (NYDFS) has filed its memorandum of law opposition to the OCC’s motion to dismiss the NYDFS’…

The New York Department of Financial Services (NYDFS) has filed its memorandum of law opposition to the OCC’s motion to dismiss the NYDFS’ challenge to the OCC’s non-depository “fintech” charter. Unsurprisingly the arguments in the memo are very similar to those made by the Conference of State Bank Supervisors (CSBS), but these arguments are delivered with the understated and taciturn style for which New Yorkers are famous. Most of the arguments are similar, which you’ll see if you read the NYDFS memo and my previous post on the CSBS memo. In this post, I wanted to highlight and respond to two unique arguments the NYDFS makes.

First, on page 12 (using the NYDFS’ numbering) of the memo, the NYDFS tries to execute a clever pincer maneuver against the OCC’s arguments that the fintech charter is not final enough to be sued over and that the OCC is entitled to Chevron deference on the definition of the “business of banking”. The NYDFS points to case law that says that an agency decision that can be defended based on Chevron is also final enough to be reviewable.

To be fair, the OCC cited Chevron as the alternative to its principal argument that the action is not sufficiently final to be sued over. The OCC isn’t saying that a lack of finality and Chevron deference exist concurrently. That said, the NYDFS argument is an effective way to highlight the tension between the OCC’s two arguments and potentially undercut the OCC’s ability to argue that the decision is not final: if OCC staffers have done the work to qualify for Chevron, they have to be fairly far along in the process.

Second, on page 8 the NYDFS cites to its original complaint to argue that part of the potential harm from the OCC’s charter effort would be the preemption of state consumer protection laws. Such preemption risks exposing New Yorkers to:

[P]ayday, and other high-interest, small dollar lending, which “charge exorbitant interest rates that trap consumers in a cycle of high-interest borrowing that they can never repay, leading to the sort of economic and social devastation like that seen in the recent foreclosure crisis.” As these types of lending are illegal under New York law, consumers would not be exposed to these exploitative practices — but for the Fintech Charter Decision. (emphasis added; internal citations omitted)

Wow! That sounds pretty bad, but it misses an important point. The OCC is discussing offering a national bank charter to fintech firms, not a “marauding horde” charter. The powers a fintech firm would get with an OCC charter are equal to those already enjoyed by existing national banks, and in the case of lending, state banks. Consumers in New York can already legally access credit options that would not comply with New York law because Congress has already decided to preempt New York law. Expanding the ranks of national banks does not create a new “threat”; it simply expands the number of firms that can take advantage of an existing set of laws.

Anyway, as with the CSBS suit, the OCC gets a chance to respond. Then the court will decide whether to dismiss the suit or decide it on the merits. So stay tuned for more Bank Wars.