NSF Fees
Minnesota Bankers Association v. Federal Deposit Insurance Corporation
Date: July 20, 2023
Issue: Whether the Federal Deposit Insurance Corporation’s Financial Institutions Letter 40-2022: Supervisory Guidance on Multiple Re-Presentment NSF Fees (FIL 40), violates the Administrative Procedure Act (APA).
Case Summary: FDIC moved to dismiss the Minnesota Bankers Association’s and Lake Central Bank’s (plaintiffs) lawsuit alleging the agency’s guidance addressing banks’ practice of charging multiple NSF fees for represented transactions violates the APA.
In August 2022, FDIC issued 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 FDIC expects institutions self-identifying re-presentment NSF fee issues take full corrective action, such as paying full restitution; correcting NSF fee disclosures and providing revised disclosures to customers consider whether additional risk mitigation practices are needed to reduce potential unfairness risk; and monitoring ongoing activities and customers’ feedback to ensure lasting corrective action.
Plaintiffs sued FDIC in Minnesota federal court alleging three claims. First, plaintiffs alleged FIL 40 is a legislative rule because it imposes new legal obligations on banks and commits FDIC to bringing enforcement actions under specific circumstances. Second, plaintiffs claimed FIL 40 is an arbitrary and capricious agency action. Third, plaintiffs claimed FIL 40 exceeds FDIC’s statutory authority because no provision of federal law gives FDIC authority to promulgate rules identifying specific UDAAP violations or rules governing disclosure requirements for customers’ deposit accounts or ACH transactions. Plaintiffs sought declaratory and injunctive relief from the court.
In its motion to dismiss, FDIC argued the court should dismiss for lack of jurisdiction. According to FDIC, plaintiffs lack standing to challenge FDIC’s guidance. FDIC contended Plaintiff’s claimed injuries are not redressable, because as a threshold requirement, Plaintiffs must show a “substantial likelihood” of redressability. FDIC explained an injury may be redressable if “some rule stands in the way of a desired outcome and a favorable decision will remove the obstacle.” FDIC asserted no such rule stands in Plaintiffs way and no favorable decision will remove the obstacle they seek to avoid.
FDIC also argued plaintiffs failed to state a claim because FIL 32 does not constitute final agency action and thus is not arbitrary and capricious nor subject to APA review. According to FDIC, FIL 32 is a general statement of policy, does not impose new rights or obligations or give rise to legal consequences, and was not intended to be a binding legislative rule. Also, FDIC asserted FIL 32 does not declare specific conduct to be unfair or deceptive or threaten enforcement actions based on noncompliance with the guidance; instead, the guidance makes clear any future enforcement action would be evaluated under the specific facts and circumstances presented. FDIC emphasized the possibility of future enforcement actions resulting from engaging in a practice that carries heightened risk without employing risk mitigation efforts does not amount to legal consequences flowing from the guidance itself.
Finally, FDIC argued plaintiffs’ challenge remains unripe for judicial review. Because no final agency action exists, according to FDIC, this necessarily renders plaintiffs’ claims unripe. But even if FIL 32 constituted final agency action, FDIC contended Plaintiffs would not be harmed if judicial review were withheld, because FIL 32 does not commit FDIC examiners to any specific supervisory determination. In FDIC’s view, FIL 32 merely notifies institutions about an area of supervisory focus that, following examination and administrative processes, might lead FDIC to seek corrective action through an administrative process. FDIC explained the threat of enforcement alleged by plaintiffs cannot constitute a significant hardship because, concluding otherwise, would allow banks to subvert FDIC’s supervisory process before it begins.
Bottom Line: FDIC’s main argument is that FIL 32 is not a final agency action because it is only guidance. Similarly, in ABA’s UDAAP manual litigation (discussed above), CFPB argued the manual update was not a final agency action because it was guidance, but the Eastern District of Texas disagreed.
Documents: Opinion
