UPDATE 1-State banking regulators sue U.S. government to stop fintech charters

(Adds comment from OCC)

WASHINGTON, Oct 25 (Reuters) - A body of U.S. state banking regulators on Thursday sued the federal government to void its decision to award national bank charters to online lenders and payment companies, saying it was unconstitutional and puts consumers and taxpayers at risk.

The Conference of State Bank Supervisors (CSBS) said it had filed a complaint in the U.S. District Court for the District of Columbia against the Office of the Comptroller of the Currency (OCC) over its plan, announced in July, to issue bank charters to financial technology firms.

“Common sense and the law tell us that a nonbank is not a bank. Thus, CSBS is calling on the courts to stop the unlawful, unwarranted expansion of powers by the OCC,” John Ryan, CSBS President and CEO said in a statement.

Fintech firms have long pushed for national bank charters to let them operate nationwide without needing licenses in every state, a process they say can impede growth and boost costs.

OCC spokesman Bryan Hubbard said the regulator was confident in its statutory authority to issue national bank charters which would provide an extra option for firms in addition to state licenses. He also disputed CSBS’ claim that state consumer protection laws may cease to apply to fintech firms that secured the federal OCC license.

“State laws that address anti-discrimination, fair lending, debt collection ... would also apply to special purpose national banks” Hubbard added. “State laws that prohibit unfair or deceptive acts or practices that address concerns such as material misrepresentations and omissions about products and services ... also generally apply to national banks.”

The new CSBS litigation, which follows a similar suit filed by the New York Department of Financial Services (NYDFS) last month, will likely complicate the OCC’s efforts to advance with the charter.

Several fintech companies told Reuters in August that they would be cautious about applying for the OCC license while legal challenges remained unresolved.

CSBS and the NYDFS had previously filed suits against the OCC in 2017 but those were dismissed by the court as premature.

The CSBS and NYDFS are seeking new court action as a result of the OCC’s July announcement that it would start accepting license applications from fintech firms. (Reporting by Michelle Price; editing by Susan Thomas and G Crosse)