The Conference of State Bank Supervisors (CSBS) has suffered a setback to its lawsuit against the Office of the Comptroller over its plan to offer bank charters to FinTech companies.

A court ruling from the U.S. District Court for the District of Columbia, filed on April 30, says their lawsuit is too early for its consideration because the OCC’s plan has yet to be implemented.

Their arguments were deemed “not persuasive when considered against the hardship to the OCC if each minor step towards a potential agency policy were litigated one-by-one as the policy becomes more settled,” the opinion by Judge Dabney Friedrich says. “For these reasons, the prudential ripeness doctrine counsels in favor of allowing time to sharpen this dispute before deciding it. Indeed, there may ultimately be no case to decide at all if the OCC does not charter a Fintech. Therefore, even if CSBS had successfully alleged an injury in fact, this case is prudentially unripe.”

In December 2016, the OCC announced it was considering applications from financial technology companies to become special purpose national banks. Companies that seek a charter would be evaluated to ensure they have a reasonable chance of success, appropriate risk management, effective consumer protection, and strong capital and liquidity.

During the past year, the number of FinTech companies in the United States and United Kingdom has ballooned to more than 4,000; in just five years investment in this sector has grown from $1.8 billion to $24 billion worldwide.

“Through the chartering process, the OCC can fully explore how the proposed bank’s policies, procedures, and practices are designed to protect individuals and small business customers,” former OCC Director Thomas Curry said at the time of the proposal. “Many will choose to partner with existing banks or provide services to banks and other financial companies, but some will seek to become a bank. In those cases, it will be much better for the health of the federal banking system and everyone who relies on these institutions, if these companies enter the system through a clearly marked front gate, rather than in some back door, where risks may not be as thoughtfully assessed and managed.”

Throughout the past year, the OCC has continued to refine its FinTech charter plans. A formal announcement on the initiative is expected in the coming weeks.

Last April, the Conference of State Bank Supervisors, the national organization of bank regulators from all 50 states announced that it filed a complaint in the U.S. District Court for the District of Columbia against the OCC, seeking to prevent the agency from moving forward “with an unlawful attempt to create a national nonbank charter that will harm markets, innovation and consumers.”

“The OCC’s action is an unprecedented, unlawful expansion of the chartering authority given to it by Congress for national banks. If Congress had intended it to be used for another purpose, it would have explicitly authorized the OCC to do so,” said John Ryan, CSBS president and CEO. “If the OCC is allowed to proceed with the creation of a special purpose nonbank charter, it will set a dangerous precedent that any federal agency can act beyond the legal limits of its authority.”

The complaint asserted that by creating a national bank charter for non-bank companies, the OCC has gone far beyond the limited authority granted to it by Congress under the National Bank Act and other federal banking laws. Those laws authorize the OCC to only charter institutions that engage in the “business of banking,” which under the National Bank Act requires an institution, at minimum, to receive deposits.  “Yet, the OCC was attempting to create a new special purpose charter for nonbank companies that do not take deposits, without express statutory authorization,” CSBS argued. “The OCC does not have the authority to create a special purpose charter for nonbanks without specific congressional approval.”

 “The OCC’s proposed action ignores Congress, seeks to preempt state consumer protection laws, harms markets and innovation, and puts taxpayers at risk of inevitable fintech failures. This is a dangerous combination and one the court should decisively halt,” added Ryan.

A year later, the CSBS—which operates the Nationwide Multistate Licensing System to license and register non-depository financial service providers in the mortgage, money services businesses, consumer finance, and debt industries—announced its legal setback.

“The Judge decided that the OCC has not made a final decision on proceeding with the Fintech Charter and, thus, the matter is not yet ripe for consideration. As a result, the Judge did not render a decision on the merits of our case,” a statement says. “State regulators continue to supervise a vibrant financial services market of banks and nonbanks alike, promoting access to innovative products while ensuring consumer protection. Indeed, states are actively modernizing financial regulation by moving towards an integrated, 50-state system of licensing and supervision for FinTechs and other nonbanks.”