Nonsufficient Funds Fees
Minnesota Bankers Association v. Federal Deposit Insurance Corporation
Date: Feb. 14, 2024
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: The Minnesota Bankers Association and Lake Central Bank (plaintiffs) filed an opposition brief to the Federal Deposit Insurance Corporation’s (FDIC) motion to dismiss their lawsuit challenging the FDIC’s supervisory guidance on nonsufficient funds (NSF) fees.
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 to vacate FIL 40, alleging three claims. First, the 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, the plaintiffs claimed FIL 40 is an arbitrary and capricious agency action. Third, the plaintiffs claimed FIL 40 exceeds FDIC’s statutory authority because no provision of federal law gives FDIC the authority to promulgate rules identifying specific Unfair, Deceptive, or Abusive Acts or Practices (UDAAP) violations for customers’ deposit accounts or automated clearing house transactions. Plaintiffs sought declaratory and injunctive relief from the court.
In their brief, the plaintiffs opposed FDIC’s arguments supporting its motion to dismiss. First, the plaintiffs have standing to sue. The plaintiffs argued vacating FIL 32 would save them money because they would cease ongoing monitoring for re-presentment fees, while eliminating costs for new disclosures associated with FIL 32. For these reasons, the plaintiffs’ alleged injuries are sufficiently redressable.
Second, FIL 32 is a final agency action because it imposes obligations and legal consequences for the regulated industry. The plaintiffs contended FDIC issued FIL 32 to regulate re-presentment NSF fees and identify required disclosures, mitigation steps, and corrective action. Moreover, in response to FDIC’s argument it has “broad statutory authority to examine the affairs of financial institutions it supervises,” plaintiffs contended FDIC’s intent is not determinative nor entitled to Chevron deference.
Third, FDIC has no rulemaking authority because the Truth in Savings Act and the Electronic Funds Transfer Act entrust the Consumer Financial Protection Bureau (CFPB) with legislative rulemaking authority related to NSF fees. The plaintiffs explained the Federal Trade Commission (FTC) Act does not authorize FDIC to issue legislative rules that define specific practices as unfair or deceptive. Under the Dodd-Frank Act UDAAP provisions, the CFPB is exclusively granted rulemaking authority to identify specific unlawful acts or practices and to prescribe consumer disclosure requirements.
Fourth, plaintiffs argued their claims are ripe for judicial review. A party seeking review must show both the fitness of the issues for judicial decision and the hardship to the parties of withholding court consideration. Plaintiffs explained whether FIL 32 is a legislative rule is a legal question fit for determination. In addressing the hardship element, Plaintiffs reiterated they have suffered hardships because they altered their behavior to comply with FIL 32.
Bottom Line: On February 28, the FDIC filed a reply brief in support of their motion to dismiss. In their brief FDIC argued the plaintiffs claimed injuries are not redressable. The FDIC also argued FIL 32 is not subject to APA review. Finally, FDIC argued that the plaintiffs misstated and misapplied the ripeness doctrine.
Documents: Opinion
