Minnesota Bankers Association, Lake Central Bank Sue FDIC Alleging FIL on NSF Fees Violates APA

Administrative Procedure Act
Minnesota Bankers Association v. Federal Deposit Insurance Corporation
Date: July 20, 2023

Issue: Whether FDIC’s Financial Institutions Letter 40-2022: Supervisory Guidance on Multiple Re-Presentment NSF Fees (FIL 40), violates the Administrative Procedure Act (APA).

‌Case Summary:  The Minnesota Bankers Association and Lake Central Bank (MBA and LCB) sued FDIC in Minnesota federal court alleging its guidance addressing banks’ practice of charging multiple NSF fees for represented transactions violates the APA.

In August 2022, FDIC issued its Financial Institutions Letter 40-2022: Supervisory Guidance on Multiple Re-Presentment NSF Fees (FIL 40). The guidance only directly applied to state-chartered banks and thrifts with assets of less than $10 billion that are not members of the Federal Reserve System. The guidance emphasized the FDIC expects institutions self-identifying re-presentment NSF fee issues take full corrective action including paying full restitution; correct NSF fee disclosures and provide revised disclosures to customers; consider whether additional risk mitigation practices are needed to reduce potential unfairness risk; and monitor ongoing activities and customers’ feedback to ensure lasting corrective action.

MBA and LCB sued FDIC in Minnesota federal court, making three claims. First, MBA and LCB alleged FIL 40 is a legislative rule because it imposes new legal obligations on banks and commits FDIC to bring enforcement actions under specific circumstances. According to MBA and LCB, FDIC did not follow notice-and-comment rulemaking when issuing this legislative rule and therefore violated the APA.

Second, MBA and LCB claimed FIL 40 is an arbitrary and capricious agency action. In their view, FDIC invalidated years of reliance on existing regulations and supervision when issuing FIL 40. Moreover, FIL 40 never acknowledged a departure from accepted practices or offered a reasoned explanation of the sudden changes.

Third, MBA and LCB claimed FIL 40 exceeds FDIC’s statutory authority because no provision of federal law gives FDIC authority to promulgate rules identifying specific UDAP violations or rules governing disclosure requirements for customers’ deposit accounts or ACH transactions. According to MBA and LCB, the Federal Trade Commission, rather than FDIC, has exclusive authority to define unfair and deceptive acts and practices. Moreover, although FDIC issued FIL 32 to clarify certain aspects of FIL 40, MBA and LCB specified “FIL 40 is a legislative rule that imposes new legal obligations on regulated financial institutions and commits the FDIC to take enforcement actions under specific circumstances related to the new obligations.”

MBA and LCB seek declaratory and injunctive relief from the court. They requested a declaration stating FIL 40 is a legislative rule issued without observance of procedure required by law; is arbitrary, capricious, and an abuse of discretion; and exceeds FDIC’s statutory authority. Additionally, MBA and LCB ask the court to vacate FIL 40 and permanently enjoining its application or enforcement, award attorney fees, and grant any other relief the court deems just and equitable.

Bottom Line: FDIC’s answer to MBA’s complaint is due Sept. 18, 2023.

Documents: Opinion