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5th Cir. Rejects Putative Class Action Under National Bank Act on Overdraft Fees

banking lawThe U.S. Court of Appeals for the Fifth Circuit recently affirmed the dismissal of a putative class action challenging a bank’s overdraft fees as usurious under the National Bank Act, 12 U.S.C. § 1 et seq. (NBA).

In so ruling, the Fifth Circuit held after extensive analysis that the Office of the Comptroller of the Currency’s (OCC) official Interpretive Letter on the subject was entitled to deference.

A copy of the opinion in Johnson v. BOKF National Ass’n is available at:  Link to Opinion.

The plaintiff checking account holder filed a putative class action under the NBA, challenging the “Extended Overdraft Charges” assessed by the bank when she overdrew on her checking account and failed to timely cover the overdraft.

The plaintiff alleged that the bank extended credit to her when it covered her overdraft, and that the overdraft charges constituted usurious interest in violation of the limits set for the bank under the NBA.

As you may recall, the NBA authorizes national banks to charge “interest at the rate allowed by the laws of the State . . . where the bank is located.” 12 U.S.C. § 85.  The statute allows a bank customer who is charged interest exceeding the usury limit to “recover ‘twice the amount of the interest paid.’” 12 U.S.C. § 86.  Non-interest charges are not subject to these limits.

The Fifth Circuit noted that, although the NBA does not define the term “interest,” the Supreme Court of the United States has held that this statutory term is ambiguous and that courts should therefore defer to OCC interpretations of the word.  Smiley v. Citibank (S.D.), N.A., 517 U.S. 735, 739 (1996).

Under the OCC’s regulations, “non-interest charges include fees for what are broadly referred to as ‘deposit account services.'”  See 12 C.F.R. § 7.4002(a). The Court noted that “[b]anks have discretion to impose deposit account services fees and other non-interest charges on their account holders, such as the bank’s checking account customers, so long as the bank acts within the bounds of ‘sound banking judgment and safe and sound banking principles.’” Id. § 7.4002(b)(2).

The Fifth Circuit also recited that, “[i]n 2007, OCC issued Interpretive Letter 1082, squarely addressing for the first time whether fees charged by a Bank in connection with paying an overdraft may qualify as ‘interest’ under the NBA.”  See OCC, Interpretive Letter No. 1082, 2007 WL 5393636, at *1 (May 17, 2007). 

“Interpretive Letter 1082 was a response by OCC to an unnamed bank that described its overdraft fee structure to OCC and asked the agency whether, under the NBA and OCC’s regulations, it could ‘(1) in its discretion, honor items for which there are insufficient funds in depositors’ accounts and recover the resulting overdraft amounts as part of the Bank’s routine maintenance of these accounts; and (2) establish, charge and recover overdraft fees from depositors’ accounts for doing so.’” Id. at *1.

OCC concluded that the bank’s practices complied with the NBA and the OCC’s regulations interpreting the NBA, that “[c]reating and recovering overdrafts have long been recognized as elements of the discretionary deposit account services that banks provide,” and “that the bank’s authority to charge a fee when it pays an overdraft is expressly provided for in 12 C.F.R. § 7.4002(a), which concerns non-interest charges and fees like deposit account service charges.”

Here, the Fifth Circuit noted that the defendant bank’s deposit account agreement expressly authorized the overdraft charges at issue.  The Court then examined whether it should defer to the OCC’s Interpretive Letter 1082.

The Fifth Circuit noted that the Supreme Court of the United States “recently reaffirmed that courts should defer to an agency’s reasonable interpretation of its own regulations when the regulation’s text is ‘genuinely ambiguous,’ and the ‘character and context of the agency’s interpretation entitles it to controlling weight.’  Kisor v. Wilkie, 139 S. Ct. 2400, 2414, 2416 (2019).” 

However, “courts must ‘exhaust all the traditional tools of construction’ before determining that a regulation is genuinely ambiguous”, and must “carefully consider the text, structure, history, and purpose of a regulation,” before deferring to the regulatory agency.  Kisor, 139 S. Ct. at 2415 (quoting Chevron U.S.A. Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837, 843 n. 9 (1984)).

In addition, “deference is only merited when an agency’s interpretation of its regulation is ‘reasonable'”, and “whether the character and context of the agency interpretation entitles it to controlling weight.”  The Court noted that “’especially important markers’ for determining if an agency’s regulatory interpretation” requires deference include: “(1) whether the agency’s interpretation reflects the agency’s ‘authoritative’ or ‘official position’; (2) whether ‘the agency’s interpretation implicates its substantive expertise’; and (3) whether the agency’s construction is rooted in its ‘fair and considered judgment.’” 

The Fifth Circuit also noted that the Supreme Court of the United States “has deferred to ‘official staff memoranda . . . even though never approved by the agency head’ (quoting Ford Motor Credit v. Milhollin, 444 U.S. 555, 566 n.9 & 567 n.10 (1980)”.

After extensive examination recounted in its opinion, the Court concluded that “deference to OCC’s interpretation of these regulations is appropriate, and the agency’s determination in Interpretive Letter 1082 that the type of bank fees at issue here … are noninterest charges is a sufficient basis to resolve this case.”

Therefore, the Fifth Circuit affirmed the trial court’s judgment.

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Ralph Wutscher's practice focuses primarily on representing consumer and commercial financial services companies, including depository and non-depository mortgage lenders and servicers, as well as mortgage loan investors, financial asset buyers and sellers, loss mitigation companies, third-party debt collectors, and other financial services providers. He represents the lending and financial services industry as a litigator, and as regulatory compliance counsel. For more information, see