New York state’s top banking regulator on Friday sued the federal government to void its decision to award national bank charters to online lenders and payment companies, saying it was unconstitutional and put vulnerable consumers at risk.
Maria Vullo, superintendent of New York’s Department of Financial Services, called the July 31 decision by the Office of the Comptroller of the Currency to let financial technology companies, or fintech firms, obtain charters “lawless, ill-conceived, and destabilizing of financial markets.”
She said New York could best regulate those markets, but the OCC decision left consumers “at great risk of exploitation” by weakening oversight of predatory lending, allowing the creation of more “too big to fail” institutions, and undermining the ability of local banks to compete.
“The OCC’s reckless folly should be stopped,” Vullo said in her complaint filed in the U.S. District Court in Manhattan.
OCC spokesman Bryan Hubbard said in an email that the regulator, part of the U.S. Department of Treasury, would vigorously defend its authority to grant national charters to qualified companies “engaged in the business of banking.”
Vullo’s complaint joins a slew of litigation from regulators in Democratic-controlled or -leaning states challenging Trump administration policies.
It seeks a declaration that the OCC exceeded its authority under the National Bank Act and violated the Constitution’s 10th Amendment by usurping state powers.
The fintech industry includes such companies as the online lenders LendingClub Corp and OnDeck Capital Inc, and the cryptocurrency exchange Coinbase.
Fintech firms have long pushed for national bank charters to let them operate nationwide without needing licenses in every state, a process they say can impede growth and boost costs.
Treasury Secretary Steven Mnuchin has said easing regulation of newer financial companies can “encourage financial ingenuity to foster the nation’s vibrant financial services and technology sectors.”
But critics believe granting national bank charters to fintech firms, including those that do not hold deposits, could shield unscrupulous companies from state oversight.
Vullo oversees more than 2,200 banks, financial services companies and insurers with about $7 trillion of total assets.
“Financial centers like New York, which have developed comprehensive and well-functioning regulatory bodies, should not needlessly bear the harmful brunt of an overreaching federal agency,” the complaint said.
The case is Vullo v. Office of the Comptroller of the Currency et al, U.S. District Court, Southern District of New York, No. 18-08377.