A federal judge in New York ruled that the Office of the Comptroller of the Currency (OCC) did not have the authority to issue special bank charters to non-bank fintech companies.

The decision is a victory for state financial regulators wanting to stop the fintech charter that allowed technology start-ups trying to become banks expedite the process. The new charter would not have required them to have FDIC insurance or comply with banking regulations state-by-state.

The ruling, by Judge Victor Marrero of the Southern District of New York, came in response to a lawsuit by the New York State Department of Financial Services that claimed the fintech charter regulation would harm consumers.

“The Court finds that OCC has failed to identify a persuasive reason to deviate from ordinary administrative law procedure on this score,” Marrero wrote.

In a statement, the OCC said it disagreed with the court’s decision and the interpretation of the authority the OCC was granted under the National Bank Act. “The agency plans to appeal the ruling to resolve this issue,” it said.

“It’s a step back for fintechs that are looking long term to become banks,” said Lindsay Davis, fintech analyst at CB Insights. “A fintech charter helped streamline that regulatory process for a company getting into the market.”

Said Linda Lacewell,superintendent of the New York state department of financial services(DFS): “This decision makes the financial well-being of consumers from New York and around the country a priority. It reflects the rational conclusion that DFS and other state banking regulators have the expertise to provide the strict supervisory oversight and enforcement of anti-money laundering and consumer protection statutes and regulations that non-depository financial service providers are required to follow.”

According to Deloitte, without the expedited fintech charter, it takes 18 to 24 months to get a national bank charter. Fintech firms have partnered with traditional banks to handle federally regulated aspects of their businesses.

Propel Ventures general partner Ryan Gilbert said few startups had applied with the OCC for the charter, due to uncertainty around the litigation.

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