ICBA Challenges OCC Authority in Lawsuit Over Crypto National Trust Bank Charters

The Independent Community Bankers of America (ICBA) has filed a lawsuit against the Office of the Comptroller of the Currency (OCC) and Comptroller Jonathan Gould, challenging the OCC’s authority to issue national trust bank charters to cryptocurrency companies. The lawsuit, filed on October 2 in the U.S. District Court for the District of Columbia, targets the OCC’s interpretation of the National Bank Act, which the ICBA argues allows only traditional banks, bankers’ banks, and national trust banks with fiduciary powers to be chartered.

The dispute centers on a 1978 amendment to the National Bank Act, which the OCC has interpreted broadly to permit national trust banks to conduct non-fiduciary activities. The ICBA contends that this interpretation creates a fourth category of banks, non-depository, non-fiduciary entities, that are not authorized by the statute. The lawsuit also challenges the OCC’s conditional approval of Protego Holdings’ national trust bank charter, citing concerns over the company’s financial stability and regulatory compliance.

The ICBA’s legal argument hinges on the Third Circuit’s 1979 decision in National State Bank of Elizabeth v. Smith, which the ICBA interprets as limiting national trust banks to fiduciary activities. The OCC, however, argues that the statute distinguishes between “trust company” and “fiduciary” activities, allowing for a broader interpretation. The case could set a precedent for the OCC’s chartering authority, with significant implications for the cryptocurrency industry.

The lawsuit also raises concerns about regulatory arbitrage, arguing that cryptocurrency companies benefit from federal preemption without adhering to the same regulatory obligations as traditional banks. ICBA highlights that two of its member banks, each with less than $2.5 billion in assets, spend over $1.5 million annually on regulatory requirements, while crypto trust banks face fewer costs. Additionally, the ICBA warns of potential consumer protection issues, as uninsured national trust banks could mislead customers into believing their assets are FDIC-insured.