ICBA Challenges OCC Over Trust Charter Approvals in Federal Court

The lawsuit, which is based on the Administrative Procedure Act, seeks to invalidate an OCC rule and an interpretive letter that support the agency’s trust charter approvals. The ICBA specifically demands the rescindment of the charter approval granted to cryptocurrency company Protego Holdings Corp. An OCC representative stated that the agency does not comment on ongoing litigation.

According to the ICBA, during President Trump’s administration, the OCC approved or conditionally approved a total of 21 national trust bank charters, 13 of which are for cryptocurrency firms. The plaintiffs argue that this designation allows these companies to bypass numerous state law requirements while avoiding federal regulations that traditional depository institutions must follow.

The lawsuit contends that this development creates an uneven playing field, allowing riskier cryptocurrency entities to operate under less stringent regulations, putting community banks at a competitive disadvantage. ICBA highlighted that two of its small community bank members, each with assets below $2.5 billion, incur annual regulatory compliance costs of around $1.5 million, including Federal Deposit Insurance Corporation assessments and Community Reinvestment Act compliance—requirements that trust banks are exempt from.

ICBA President and CEO Rebeca Romero Rainey criticized the trust charter system, stating it was not meant to serve as an easy entry point into banking. She called for the court to hold the OCC accountable to its statutory limits and ensure that any non-fiduciary firm seeking benefits of a federal bank charter meets the same standards as community banks.

The lawsuit also claims the OCC has become increasingly lenient towards cryptocurrency companies, aligning with Trump’s agenda to position the U.S. as the leading country for cryptocurrency. The ICBA alleges that this shift led the OCC to quickly rescind regulations from the Biden administration just months into Trump's term.

The lawsuit focuses particularly on an OCC rule from March and an interpretive letter issued by Gould in 2021, claiming these changes misinterpret statutory authority. It notes a specific concern regarding Protego, which received conditional charter approval in February and has a troubled financial history with insufficient capital and liquidity support.

Ji Hun Kim, CEO of the Crypto Council for Innovation, criticized the ICBA's lawsuit as an effort to hinder national trust charters and innovation in payments, asserting that limiting banking to traditional models won't stop the demand for financial innovation. He emphasized that the OCC has a long history of adapting its oversight to reflect the evolution of the financial services industry.

In response to criticism, Gould has defended the OCC’s strategy, stating it evaluates applications based on a reasonable chance of success rather than a zero-risk standard, asserting that cryptocurrencies should not be viewed as separate from traditional finance.