Nonsufficient fund fees
Minnesota Bankers Association v. Federal Deposit Insurance Corporation
Date: Oct. 11, 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: The Minnesota Bankers Association and Lake Central Bank filed a reply brief in the Eighth Circuit in their appeal of a Minnesota Federal Court’s dismissal of their lawsuit challenging the FDIC’s supervisory guidance on NSF fees.
In August 2022, the FDIC issued FIL 40. The guidance explained the FDIC expects institutions self-identifying re-presentment NSF fee issues to take full corrective action. These actions include 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. In 2023, the FDIC issued Financial Institution Letter 32-2023 (FIL 32) to replace FIL 40 as the operative guidance document. Plaintiffs sued the FDIC in Minnesota federal court alleging FIL 40, as a legislative rule because it imposes new legal obligations on banks and commits the FDIC to bring enforcement actions under specific circumstances, is an arbitrary and capricious agency action exceeding the FDIC’s statutory authority.
The FDIC moved to dismiss, arguing plaintiffs’ claimed injuries were not redressable, FIL 32 is not subject to APA review, and plaintiffs misstated and misapplied the ripeness doctrine. Judge Paul Magnuson granted the FDIC’s motion to dismiss, ruling plaintiffs lacked standing to sue because FIL 32 is not a final agency action under the APA.
On appeal, plaintiffs argued FIL 32 is final agency action, as it appears in its face to be binding. Plaintiffs also argued they suffered a redressable procedural injury because FIL 32 is final agency action and thus plaintiffs possessed standing. In response, the FDIC contended plaintiffs lacked standing because their purported past and ongoing substantive injuries either lack concreteness or remain unredressable. ABA filed an amicus brief urging the Eight Circuit to reverse the dismissal, arguing FIL 32 constitutes final agency action because it has direct legal consequences and the district court’s ruling permits the FDIC to promulgate improper legal rules without fair process or accountability.
In its brief reply, plaintiffs made four main arguments. First, plaintiffs argued the FDIC did not cite any authority — other than FIL 32 — that identifies inadequately disclosed re-presentment NSF fees as unfair or deceptive trade practices under Section 5 of the FTC Act. The FDIC described FIL 32 as a document reminding banks that it expects them to take full corrective action in response to self-identified violations of the Federal Trade Commission Act (FTC Act). However, the FTC Act does not address re-presentment NSF fees as a violation of the Act. In effect, a bank cannot self-identify disclosure or alert violations by looking at the FTC Act.
Second, plaintiffs reiterated FIL 32 is final agency action because it is the consummation of the FDIC’s decision-making process. Plaintiffs noted FIL 32 establishes rights and obligations and imposes legal consequences. Plaintiffs also explained the U.S. Supreme Court assesses finality by evaluating court’s pragmatic approach to finality, which analyzes “whether the agency’s position is definitive and whether it has a direct and immediate … effect on the day-to-day business of the parties challenging the action.” Under this test, plaintiffs argue FIL 32 is a final agency action because FIL 32 warns every regulated bank that charges re-presentment NSF fees that it does so at the risk of enforcement actions including civil money penalties. The risk of these penalties and need to comply with FIL 32 directly affect the day-to-day business of banks.
Third, plaintiffs reiterated they possess Article III standing. Plaintiffs claimed they have concrete interest in not having the FDIC impose FIL 32’s obligations beyond those which can be statutorily imposed upon them. Additionally, plaintiffs contended they sufficiently alleged harms to establish both organizational standing and associational standing. According to MBA, it expended significant resources to communicate with its members regarding the impact and response to the new mandates. What is more, MBA claimed it has associational standing because its member — Lake Central Bank — has standing. According to plaintiffs, assuming these alleged injuries are true and were caused by FIL 32, the alleged injuries would be redressed if FIL 32 were vacated.
Finally, plaintiffs argued their claims are ripe for review. The Eighth Circuit has ruled a case is ripe when it presents the purely legal question of whether alleged guidance is final agency action. Further, courts find legal issues are ripe where they are important to an industry and require the industry to move forward without knowing agency action is valid. FDIC argued plaintiff’s claims are “prudentially unripe because they have not established a sufficient risk of significant practical harm warranting immediate judicial review.” However, plaintiffs explained that the Eighth Circuit does not appear to analyze “prudential” ripeness separate from the factors of “fitness” and “hardship” and that their case supported the finding of ripeness.
Bottom Line: As of Nov. 1, 2024, oral arguments have not yet been scheduled.
Document: Brief
