Subscribe free
occnational-trust-banksicbabank-chartercryptolitigationloper-brightcommunity-banks

ICBA v. OCC: The Rule Is the OCC's Safe Ground. IL 1176 and the Protego Approval Are Where It Can Lose

ICBA v. OCC: the trust charter rule (91 FR 9977) is safe ground; IL 1176 and the Protego approval are exposed. What it means for counterparties.

By Lex, LexRegPulse Analyst · ·10 min read
Primary-source research · AI-drafted · human-reviewed. Methodology

Footnote 27 of the OCC's National Bank Chartering final rule is the most useful sentence in the record of Independent Community Bankers of America v. Office of the Comptroller of the Currency, No. 1:26-cv-03441 (D.D.C., filed October 2, 2026). Answering commenters who said "trust company" in 12 U.S.C. 27(a) means fiduciary work, the OCC replied that amending its regulation to track the statute "serves to adopt the statutory standard, whatever the courts determine it to be" (91 FR 9977, 9979 (Mar. 2, 2026)). The agency wrote its defense before ICBA filed. A rule that copies statutory text is very hard to hold unlawful on its face.

That reframes the case for bank GCs and CROs. ICBA's three counts target the rule, Interpretive Letter 1176 and the OCC's February 2026 conditional approval of Protego. The headlines treat the rule as the main event. It is the weakest of the three. The live risk to the 21 trust-charter approvals the complaint counts sits in IL 1176's state-law gloss and in an as-applied attack on Protego's business lines. Institutions onboarding OCC trust banks as counterparties should plan for an outcome that sorts activities, not one that voids charters wholesale.

Background

The statutory sentence at issue is 47 years old. Congress added it to section 27(a) in the Financial Institutions Regulatory and Interest Rate Control Act, Pub. L. No. 95-630, tit. XV, § 1504, 92 Stat. 3641, 3713, enacted November 10, 1978. It says a national bank "is not illegally constituted solely because its operations are or have been required by the Comptroller of the Currency to be limited to those of a trust company and activities related thereto."

Congress acted mid-litigation. A New Jersey district court had invalidated the charter of City Trust Services, a trust-only national bank owned through a savings association, and ordered the Comptroller to revoke its certificate. The Third Circuit reversed in National State Bank of Elizabeth v. Smith, 591 F.2d 223 (3d Cir. 1979), holding that the new sentence validated the charter. In doing so it read "trust company" to mean "the trust or fiduciary operations of such a company," reasoning that otherwise the limit would be "virtually meaningless," because in most states trust companies "conduct the general banking business of receiving deposits and making loans."

The OCC has tried to stretch special purpose charters before. In 2003 the OCC amended 12 CFR 5.20(e)(1)(i) to allow special purpose banks limited to "fiduciary activities or to any other activities within the business of banking," with non-fiduciary special purpose banks required to perform a core banking function. New York's challenge to the resulting fintech charter died on justiciability: in Lacewell v. OCC, 999 F.3d 130 (2d Cir. June 3, 2021), the court held that New York lacked standing and that its claims were unripe because "no non-depository fintech has filed a formal SPNB charter application." It expressly declined to reach whether the "business of banking" requires deposits.

Five months earlier, on January 11, 2021, the OCC issued IL 1176, authored by then-Chief Counsel Jonathan Gould. The letter says a national trust bank "may be permitted to engage in any and all activities permitted under state law for a state trust company located in the same state," plus activities authorized for national banks elsewhere. The January 2026 proposal and the March 2026 final rule swapped "fiduciary activities" in section 5.20 for the statutory phrase, effective April 1, 2026. The OCC received 19 comments and finalized the text without change. As we covered in our October 3 brief, the suit followed the OCC's September 18 decisions on Bastion, Catena and Agora.

Analysis

Statutory authority: ICBA has the better history; the OCC has the better text. The OCC's textual argument is serious. Congress wrote "trust company" in section 27(a) and "fiduciary" in 12 U.S.C. 92a. It also used "trust or fiduciary capacity" in the Bank Holding Company Act, which the preamble reads as proof the words mean different things. Custody is the OCC's strongest ground. The preamble reports that the agency supervises roughly 60 national trust banks, which hold nearly $2 trillion in custody and safekeeping accounts.

The awkward part for ICBA is its legislative history. The complaint quotes Senate floor statements and House testimony from 1979, after the November 1978 enactment. The Third Circuit itself said it found "no legislative history to assist us." Post-enactment statements will carry little weight.

The awkward part for the OCC is worse. The Third Circuit's "virtually meaningless" reasoning is aimed squarely at IL 1176's theory. If a national trust bank may do "any and all" activities state law allows a state trust company, the statutory "limit" means nothing wherever state trust companies take deposits or lend. Whether that passage is holding or dicta, as the OCC calls it, the logic survives the label. The preamble also concedes that "any non-fiduciary activity must be authorized by separate statutory authority, such as section 24(Seventh)." That routes the case back to the question Lacewell left open: can a bank that takes no deposits exercise business-of-banking powers? A court can uphold the rule's text and still reject IL 1176's reading.

Deference after Loper Bright. There is none to fight over, and the OCC knows it. Its own preamble cites Loper Bright Enterprises v. Raimondo, 603 U.S. 369, 412 (2024), for the point that courts "must exercise their independent judgment." What remains is Skidmore-style respect, which Loper Bright says is strongest for interpretations "issued contemporaneously with the statute at issue, and which have remained consistent over time." That favors ICBA. The complaint cites a 1980 OCC letter reading "trust company" as fiduciary operations under section 92a, Interpretive Letter 265 from 1983, and Comptroller's Handbook language stating that trust banks "limit their services to fiduciary activities." IL 1176 arrived 42 years after the statute.

ICBA's major-questions count is weaker than its pleading suggests. Twenty-one trust charters are not the economy-wide authority at stake in West Virginia v. EPA, 597 U.S. 697 (2022). The GENIUS Act also cuts against ICBA. The complaint concedes that the Act lists "uninsured national banks chartered by the OCC" among eligible stablecoin issuers. Congress legislated in 2025 knowing those charters existed. (Our SoFi analysis covers how the Act treats bank-issued stablecoins.)

APA: the change-in-position claim is real. FCC v. Fox Television Stations, 556 U.S. 502 (2009), lets an agency change course, but it must "display awareness that it is changing position" and may not depart from prior policy "sub silentio." The OCC's preamble says the 2003 text "has never been interpreted by the OCC" to restrict trust banks. If the court credits the 1980, 1983 and Handbook statements, that denial is the defect. The rule's comment responses are easier to defend. The OCC declared resolution, moratorium and public-interest arguments "beyond the scope" of a rule that only copies statutory language. It gave the same answer to commenters who asked it to define "operations of a trust company" and "related thereto," including one who warned that leaving non-fiduciary activities unspecified would be arbitrary and capricious: the OCC will decide in each application whether an activity is "within the operations of a trust company, related thereto, or neither."

The OCC's own strategy creates a trap here. It deferred every hard question, including "whether there is any required quantum of fiduciary activities," to "case-by-case" licensing review. That makes each approval the place where reasoned-decisionmaking review bites. The Protego approval, with its custody, trading, lending and issuer platforms run in a non-fiduciary capacity per the complaint, is exactly where the OCC promised to answer those questions.

ICBA's procedural attack on IL 1176 should fail. Section 553(b)(A) of the APA exempts "interpretative rules" from notice and comment. Timing is not a problem either. Under Corner Post, Inc. v. Board of Governors (2024), an APA claim accrues when the plaintiff is injured by final agency action.

Standing and ripeness: this is not Lacewell. The Second Circuit dismissed because no application existed. Here the OCC has approved or conditionally approved 21 trust banks, at least 13 of them crypto companies, by ICBA's count. The complaint describes two members under $2.5 billion in assets that each spend over $1.5 million a year on regulatory requirements. Both have allegedly lost "hundreds of thousands of dollars in business this year." The soft spot is that neither bank is named, and the complaint ties the lost business to no particular charter. Summers v. Earth Island Institute, 555 U.S. 488, 498 (2009), requires "specific allegations establishing that at least one identified member had suffered or would suffer harm." Expect the OCC to raise it. National State Bank of Elizabeth called competitor standing to challenge a charter "so well established" that courts often skip the question. Justice Kavanaugh's Corner Post concurrence cites NCUA v. First National Bank & Trust Co., 522 U.S. 479 (1998), in which banks challenged a competitor's charter amendments, as a standard competitor suit.

The OCC's better threshold argument is finality. A preliminary conditional approval is revocable before opening, as our September 21 brief noted. Expect that argument against Count III. There is also a pleading wrinkle. The complaint's jurisdiction paragraph identifies the challenged Protego approval as Conditional Approval #1259, a February 4, 2021 letter that the complaint itself says expired in 2023. Its factual allegations describe the February 2026 approval, which ICBA's press release links as Corporate Decision #1366. An amended complaint is likely.

Remedy: vacatur of the rule bites harder than the OCC suggests. ICBA asks the court to vacate the rule, IL 1176 and the Protego approval. It also seeks to enjoin the OCC from using either document "to grant or conditionally approve any charter." It does not ask the court to undo any approval other than Protego's. Vacating the rule would restore the 2003 text, which on its face requires a special purpose bank conducting "activities other than fiduciary activities" to receive deposits, pay checks or lend. That is the reading the OCC spent a rulemaking trying to bury. It would not, on its own, reach Protego. Corporate Decision #1366 is dated February 13, 2026, before the rule was published on March 2 or took effect on April 1, and it cites IL 1176 rather than the amended section 5.20. Count III has to win on the statute or through IL 1176.

Under Allied-Signal, Inc. v. NRC, 988 F.2d 146 (D.C. Cir. 1993), the choice turns on "the seriousness of the order's deficiencies" and "the disruptive consequences of an interim change." A lack of statutory authority cannot be cured on remand, which points toward vacatur on Counts I and II if ICBA wins them. An arbitrary-and-capricious defect in the Protego approval is the classic candidate for remand without vacatur. The forward-looking injunction covering "any charter" is the hardest ask.

One non-obvious consequence deserves attention. ICBA's maximal theory, that trust banks are confined to section 92a fiduciary work, would reach non-fiduciary custody at incumbent national trust banks, including bank-owned ones. A court will avoid that result if it can. The easiest path for a court is to leave the rule's text standing, reject IL 1176's state-law incorporation, then scrutinize non-custody activity application by application.

What to Watch

The government has 60 days after service on the U.S. attorney to answer or move under Rule 12(a)(2). Service dates are not public, so neither is the exact deadline. Watch for an amended complaint fixing the Protego exhibit. Also watch whether ICBA seeks preliminary relief; its announcement describes only final relief. Approved institutions will likely move to intervene. Modern Treasury and Rain filed trust-charter applications days after the suit, as covered in our October 6 brief. The GENIUS Act takes effect January 18, 2027, unless final rules arrive sooner, per the complaint.

For counterparties, the practical step is to map exposure by activity. Custody relationships with OCC trust banks carry the least legal risk. Trading, lending and issuer-services relationships carry the most. Contracts should include termination and repapering triggers tied to vacatur, remand or revocation of a charter.

Bottom Line

ICBA will probably not get the rule vacated, because the OCC drafted it to say nothing the statute does not. The case turns instead on whether a non-depository trust bank may run non-fiduciary businesses under business-of-banking powers. On that question, the Third Circuit's 1979 logic and the absence of any contemporaneous OCC support put IL 1176 in real jeopardy. Expect the fight to land on Protego's trading and lending platforms, not on custody.

Sources