If the Senate confirms Trump’s nominee for the Supreme Court, it will cement a conservative majority that will likely decide a variety of fintech issues, including the rules digital payment companies have to follow when providing broader financial services.
The Trump administration on Saturday nominated Amy Coney Barrett, a circuit judge on the U.S. Court of Appeals for the Seventh Circuit to fill the seat vacated by Ruth Bader Ginsburg, who died Sept. 18, ending a 27-year term. The nominee, if confirmed, will give the court’s conservatives a 6-3 majority.
Soon after, the court may be required to decide on a variety of controversies over the government’s role in protecting cash and financial inclusion, cryptocurrency and stablecoin regulation, and the relationship between regulations for fintechs and traditional depository banks.
The most likely short-term issue is the Office of Comptroller of the Currency’s moves to make it easier for nonbanks to provide banking services. The OCC issued a fintech charter in 2015 and a “payments charter” in 2019, both with the goal of streamlining national licensing rather than requiring individual licenses in each state. The federal licenses in theory would allow companies with business models similar to PayPal and Stripe to offer banking services.
The OCC has faced myriad legal challenges from states, most recently a successful challenge from New York regulators, resulting in an October ruling from the U.S. District Judge Victor Marrero. Marrero, a Clinton appointee, said the OCC overstepped its boundaries in creating the fintech charter.
The payments charter is similar to the earlier fintech charter in that it provides cover for nondepository companies to obtain a banking license. The state argument, geared more toward the fintech charter covering nonbank lenders, is that the OCC cannot grant this type of permission to companies that do not have deposit insurance.
The OCC appealed, putting the issue on a path to the Supreme Court. The underlying concept is what’s called the “Chevron deference,” a reference to a 1984 Supreme Court case that compels, but does not require, courts to defer to a regulatory agency’s interpretation of a federal law’s ambiguity.
The OCC is applying Chevron to the National Banking Act, which references several banking activities but lists the activities in such a way that creates conflict over whether deposits are a specific condition for a bank license. Marrero agreed with the state’s argument, while the OCC contends a bank can engage in lending, deposits or payments.
“Whether that means the chartered association has to take deposits would ultimately be adjudicated by the courts,” said Eric Grover, a principal at Intrepid Ventures. “If the Supreme Court addressed [this issue], it might not split cleanly along the lines of so-called conservative and liberal justices.”
The liberal justices, like Marrero, would likely support the state argument in favor of a greater regulatory role for the states and a more difficult path for nonbank firms to offer banking.
Trump’s earlier Supreme Court picks, Neil Gorsuch and Brett Kavanaugh, have expressed opposition to the Chevron deference, and conservative legal thought in general opposes the concentration of power in regulatory agencies. But that doesn’t easily predict a ruling on a fintech or payments charter. The OCC is accruing centralized government power but is doing so in the service of deregulation.
“On the one hand this seems to be in excess of the OCC’s statutory authority, and conservative judges have been tightening up on the traditional Chevron deference given since the ’80s to administrative agencies interpreting their own enabling acts,” said Robert Hockett, a law professor at Cornell University, adding conservative judges also lean toward regulatory relaxation, which an easier fintech charter would be.
It’s impossible to know how Barrett would rule on a fintech charter case in advance, but as a “textualist” whose views closely align with late Justice Antonin Scalia, Barrett would be less likely to conclude that an agency is entitled to the Chevron deference, according to the Yale Journal on Regulation.
“So we have a real irony here: Should judges change course on agency discretion to allow agencies to play loose with their own authority in relaxing the regs, or should they stay that recent course and thus invalidate the current OCC’s opening the door to shadow-banking fintech firms?” Hockett said.
According to a survey of financial services professionals by Arizent, publisher of PaymentsSource, American Banker, Financial Planning and other financial services publications, 83.5% said the makeup of the Supreme Court is critical or very important, with 71.7% of Republicans, 95.3% of Democrats and 71.4% of independents giving that answer. With a vacancy, 47.4% of respondents say the Supreme Court is a more important factor in their vote, with 38% of Democrats, 24% of Republicans and 29% of independents giving that answer.
There are additional financial technology issues that could cause litigation in the coming years, potentially reaching the Supreme Court’s docket. Some local governments have passed laws mandating businesses accept cash, a position businesses have said would make it expensive to operate.
Interchange fees have been the subject of court battles for years, and a more conservative court could lean toward issuers over merchants. And any legal challenge to digitizing government disbursements or the role of banks in using the United States Postal Service to protect cash could result in legal challenges, with a more conservative court likely to lean in favor of a greater role for the private sector.
“It could be a tectonic shift in the Supreme Court’s jurisprudence,” Grover said.
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