United States: Banking Litigation To Watch In 2022

"As these largely state-regulated nonbank fintechs have matured, more are finding it economically advantageous to restructure themselves as banks. And in recent years, the Office of the Comptroller of the Currency has been receptive to these efforts, offering a customized federal banking charter intended for fintechs and approving several other charters for nontraditional, fintech-oriented banks...State regulators haven't been thrilled, to say the least. During the Trump administration, for example, they sued multiple times to shut down the OCC's fintech charter program, considering it to be an unlawful, anti-consumer power grab from the states.

But those lawsuits ended up largely fizzling, with courts — including the Second Circuit last year — repeatedly dismissing them as premature because the OCC has to date never received, let alone approved, a fintech charter application."

Still, Pryor Cashman LLP partner Jeffrey Alberts told Law360 that these tensions could flare up again in the coming year and spark renewed litigation over the future of regulation for the banking industry's fintech rivals.

"The fight between the OCC and the state banking regulators over who's going to regulate fintechs isn't over," said Alberts, who works in his firm's financial institutions and fintech groups.

For one, Alberts noted that the previous fintech charter lawsuits were never resolved on the merits. That's left open the core legal question of whether federal law permits the OCC to license and regulate fintechs as banks if they don't take deposits, which most fintechs avoid because of the additional regulatory burdens involved.

And while the fintech charter itself hasn't exactly been in high demand, cryptocurrency companies and other fintech firms have been exploring alternative charters from the OCC, creating new opportunities for friction with the banking industry and litigation with state regulators."