State regulators have dropped a lawsuit challenging Figure Technologies’ banking charter application after the San Francisco fintech dropped a controversial element of its plan.
Figure, which offers mortgage refinance loans and home equity lines of credit, had applied to become a national bank, but did not accept insured deposits and therefore would not need deposit insurance, during the last days of the Trump administration.
Had the Office of the Comptroller of the Currency approved Figure’s original request, it would have allowed the company to obtain some of the main advantages of being a national banksuch as the possibility of anticipating the interest rate limits of the States.
Figure could also have avoided certain obligations that typically apply to domestic banks, such as oversight by the Federal Deposit Insurance Corp. and the Federal Reserve, and the need to comply with the Community Reinvestment Act.
The November 2020 request was widely seen as a test case. Industry insiders said that if Figure had been successful, other tech companies might have taken a similar approach.
But the application was pushed back by traditional banks and the Conference of State Banking Supervisors, which sued against the OCC. Plaintiffs and defendants in the lawsuit have a long history as legal jockeys over federal and state regulatory authorities.
The CSBS announced Thursday that it was dropping the case after Figure amended its claim for deposit insurance.
“Federal banking laws are clear. Financial services companies, like Figure, that send and receive customer money or lend money, must obtain FDIC insurance in order to operate under a federal banking charter,” said the group’s executive vice president. , Margaret Liu, in a press release.
A day after the lawsuit was withdrawn, the OCC issued a statement indicating that Figure’s amended application contemplated the company seeking FDIC deposit insurance and seeking Fed approval to become a bank holding company. .
The OCC maintains that it has the ability to charter an uninsured institution, including one that takes deposits, according to the agency’s statement. In Figure’s original application, the company offered to take uninsured deposits over $250,000.
“I am pleased that the OCC can now consider Figure’s candidacy without the cloud of a lawsuit,” Acting Comptroller Michael Hsu said in the statement. “The changes to Figure’s banking applications, if approved, will help to ensure that the innovative activities carried out by the bank are carried out in a safe, healthy and responsible manner, on an equal footing and fully within the regulatory perimeter of the Bank.”
“There needs to be less regulatory competition and more coordination,” Hsu said. “We need to modernize the regulatory perimeter as a precondition for doing business as usual with companies interested in new business.”
“Modernizing the banking regulatory perimeter cannot be accomplished by simply defining the activities that constitute ‘doing banking’, but will also require determining what is acceptable activity to conduct in a bank,” Hsu added. “Consolidated oversight will help ensure that risks do not develop beyond the sight and reach of federal regulators.”
Last month, Figure’s general counsel, Ashley Harris, says BankingDive that the company has decided to modify its bank charter application in order to save time.
“We still feel like the law would have been on our side if it were to go to litigation, but we just don’t want to keep waiting for that to happen,” Harris said.
