NONSUFFICIENT FUNDS FEES
Minnesota Bankers Association v. Federal Deposit Insurance Corporation
Date: April 8, 2024
Issue: Whether the Federal Deposit Insurance Corporation’s (FDIC) Financial Institutions Letter 40-2022: Supervisory Guidance on Multiple Re-Presentment Nonsufficient Funds (NSF) Fees (FIL 40) violates the Administrative Procedure Act (APA).
Case Summary: A Minnesota federal district court dismissed the Minnesota Bankers Association’s and Lake Central Bank’s lawsuit challenging the FDIC’s supervisory guidance on 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 to take full corrective action, such as paying full restitution; correcting NSF fee disclosures; providing revised disclosures to customers to 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, plaintiffs 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. 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 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.
The FDIC moved to dismiss arguing plaintiffs’ claimed injuries are not redressable; FIL 32 is not subject to APA review; and plaintiffs misstated and misapplied the ripeness doctrine. Opposing the FDIC’s motion to dismiss, plaintiffs argued they have standing to sue because their injuries are redressable; FIL 32 is a final agency action imposing legal obligations and consequences; the FDIC has no rulemaking authority because the CFPB has exclusive authority to define practices as unfair or deceptive; and their claims are ripe for review.
Judge Paul Magnuson granted the FDIC’s motion to dismiss, ruling plaintiffs lacked standing to sue. Plaintiffs claimed if the agency vacates FIL 32, they will not have to monitor their policies on multiple re-resentment fees and would not have to develop consumer disclosures about their policies. The court concluded, however, that rescinding FIL 32 would not impact plaintiffs’ statutory obligations because UDAAPs are already prohibited. Plaintiffs also argued their burden to establish redressability was lessened because they asserted only a procedural injury. But the court explained a procedural injury requires plaintiffs to prove a final agency action occurred. In the court’s view, plaintiffs “put the cart before the horse” by arguing they were injured based on forced compliance of FIL 32. The court reasoned plaintiffs’ argument presumes FIL 32 mandates conduct rather than offering guidance. The court reiterated plaintiffs only possessed a “redressable concrete interest” if FIL 32 is a final rule to which the APA applies.
The court also concluded FIL 32 is not a final agency action under the APA. For an agency action to be considered “final,” it must mark the consummation of the agency’s decision-making process and “be one by which rights or obligations have been determined, or from which legal consequences will flow.” According to the court, the FDIC’s policies provide that supervisory guidance does not have the force and effect of law, but only outlines its supervisory expectations or priorities, while articulating its general views. The court emphasized there are no legal consequences because the FDIC will not institute any enforcement actions based on FIL 32. Because the court concluded FIL 32 is not a final agency action under the APA, the court ruled plaintiffs failed to establish their injuries are not redressable. The court did not examine the FDIC’s argument that FIL 32 is unripe or whether FIL 32 was arbitrary and capricious because it already held that plaintiffs lack Article III standing.
Bottom Line: Plaintiffs have until May 8 to appeal the district court’s ruling to the Eighth Circuit.
Document: Opinion
