May 12, 2017 / 9:48 PM / 3 months ago

NY regulator sues U.S. OCC over national charters for online lenders

NEW YORK (Reuters) - New York's banking regulator on Friday sued the U.S. Office of the Comptroller of the Currency over its plan to offer special-purpose charters that would let online lenders and other "fintech" companies do business nationwide, calling the plan "reckless folly."

In the lawsuit, Maria Vullo, superintendent of the New York Department of Financial Services, said the plan to grant the national charters was "lawless, ill-conceived and destabilizing of financial markets" that are best regulated by the state.

The complaint, filed in federal court in Manhattan against the OCC and acting Comptroller of the Currency Keith Noreika, seeks to prevent the U.S. banking regulator from offering the charters.

"The OCC's reckless folly should be stopped," the complaint says.

The charters would let internet lenders gouge New York borrowers by locating in states that allow higher rates, the lawsuit says. Firms now must be licensed in each state in which they do business.

The national licenses also would allow firms to skirt local consumer protection laws and capital standards, the lawsuit says.

The complaint claims the charter exceeds the agency's authority under the National Banking Act.

OCC spokesman Bryan Hubbard declined to comment on the lawsuit.

The regulator is reviewing comments on its draft licensing manual that describes how it would evaluate the applications, Hubbard said. The comment period ended April 14.

It is unclear when or whether the charters will be allowed. Eligible tech companies would include those that lend money, pay checks and/or take deposits.

Regulators have scrambled to keep pace with the development of online lenders and payment companies, which act like banks but do not take deposits.

The OCC plan was initiated under Thomas Curry, who stepped down as comptroller of the currency on May 5 after a five-year term.

Late last month, a nationwide organization of state bank supervisors brought a similar lawsuit to prevent the agency from moving forward with the charters. That complaint was filed by the Conference of State Bank Supervisors in federal court in Washington.

Reporting by Karen Freifeld; Editing by Steve Orlofsky and Leslie Adler

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