State regulators have dropped a lawsuit against Figure Technologies' filing to form a bank after the San Francisco-based fintech abandoned a controversial element of its plan.
Figure, which offers mortgage refinancing loans and home equity lines of credit, had applied to become a national bank in the last days of the Trump administration, but it didn't accept insured deposits and therefore didn't need deposit insurance.
Had the Office of the Comptroller of the Currency approved Figure's original application, it would have allowed the company to enjoy some of the key benefits of a national bank, such as: B. the possibility of circumventing government interest rate limits.
"I'm pleased that the OCC can now consider Figure's application without the cloud of a lawsuit," acting auditor Michael Hsu said in a statement Friday.
Figure would also have been able to avoid certain obligations that normally apply to national banks, such as Federal Deposit Insurance Corp. oversight. and the Federal Reserve and the need to comply with the Community Reinvestment Act.
The November 2020 bid was widely viewed as a test case. Industry insiders said if Figure had proven successful, other tech companies might have taken a similar approach.
However, the request was rejected by traditional banks and the Conference of State Banking Regulators, who filed a lawsuit against the OCC. The plaintiffs and defendants in the lawsuit have long histories of legal wrangling over federal and state regulators.
The CSBS announced Thursday that it was dropping the case after Figure amended its deposit insurance application.
“The Bundesbank laws are clear. Financial services companies like Figure that send and receive customer funds or lend money must obtain FDIC insurance to operate under a federal bank charter," said the group's executive vice president, Margaret Liu, in a press release.
A day after the lawsuit was dropped, the OCC issued a statement saying Figure's amended filing requires the company to file for deposit insurance with the FDIC and seek Fed approval to become a bank holding company.
The OCC claims that according to the agency, it has the ability to charter an uninsured institution, including one that accepts deposits. In Figure's original filing, the company proposed accepting uninsured deposits in excess of $250,000.
"I am pleased that the OCC can now consider Figure's application without the cloud of a lawsuit," Acting Comptroller Michael Hsu said in the bank's statement in a safe, sound and accountable manner, on a level playing field and fully within the regulatory perimeter be carried out by the bank."
"There needs to be less regulatory competition and more coordination," Hsu said. "We need to modernize the regulatory framework in order to be able to carry on business as usual with firms interested in novel activities."
"Modernizing the banking regulatory perimeter cannot be achieved simply by defining the activities that constitute 'banking', but also requires determining what activities are acceptable in a bank," Hsu added. "Consolidated oversight will help ensure risks do not build up outside of federal sight and reach."
Last month, Ashley Harris, Figure's general counsel, told BankingDive that the company had decided to change its application to form a bank to save time.
"We still feel that had the law gone through litigation, it would have been on our side, but we just don't want to keep waiting for that to happen," Harris said.