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Date: 03-26-2019

Case Style:

Barbara Fawcett v. Citizens Bank, N.A.

Case Number: 18-1443

Judge: Lynch

Court: United States Court of Appeals for the First Circuit on appeal from the District of Massachusetts (Suffolk County)

Plaintiff's Attorney: Edward F. Haber and Patrick J. Vallely

Defendant's Attorney: David J. Zimmer and Brenda R. Sharton


This putative class action
alleges that Citizens Bank's "Sustained Overdraft Fees" for
overdrawn checking accounts are usurious interest charges in
violation of Section 85 of the National Bank Act, 12 U.S.C. § 1 et
seq. The district court concluded that Citizens Bank's fees were
not "interest" under the Act and so dismissed the action for
failure to state a claim. Order, Fawcett v. Citizens Bank, N.A.,
No. 4:17-cv-11043-TSH (D. Mass. Apr. 19, 2018), ECF No. 36.
On the facts of this case, we hold that Citizens Bank's
"Sustained Overdraft Fees" are not "interest" under the National
Bank Act. This result follows from regulatory text and history
and from persuasive, directly applicable reasoning presented in
the Office of the Comptroller of the Currency's Interpretive Letter
1082, issued in 2007. We affirm.
The National Bank Act (NBA) governs the business
activities of national banks like Citizens Bank. The Office of
the Comptroller of the Currency (OCC), the agency Congress has
charged with implementing the NBA, oversees national banks'
operations and interactions with customers. Watters v. Wachovia
Bank, N.A., 550 U.S. 1, 6 (2007).
The NBA allows a national bank to charge "interest at
the rate allowed by the laws of the State . . . where the bank is
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located." 12 U.S.C. § 85. The NBA does not define the term
"interest." The Supreme Court has held that the term "interest"
is ambiguous and that OCC is due deference in interpreting it.
Smiley v. Citibank (S.D.), N.A., 517 U.S. 735, 739 (1996) (citing
Chevron U.S.A. Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837,
842-45 (1984)).
OCC has, in regulations promulgated after notice and
comment, defined the term "interest" as used in Section 85 of the
The term 'interest' as used in 12 U.S.C.
[§] 85 includes any payment compensating a
creditor or prospective creditor for an
extension of credit, making available of a
line of credit, or any default or breach by a
borrower of a condition upon which credit was
It includes, among other things, the
following fees connected with credit extension
or availability:
 numerical periodic rates,
 late fees,
 creditor-imposed not sufficient
funds (NSF) fees charged when a
borrower tenders payment on a debt
with a check drawn on insufficient
 overlimit fees,
 annual fees,
 cash advance fees, and
 membership fees.
It does not ordinarily include appraisal
fees, premiums and commissions attributable to
insurance guaranteeing repayment of any
extension of credit, finders' fees, fees for
document preparation or notarization, or fees
incurred to obtain credit reports.
- 4 -
12 C.F.R. § 7.4001(a) (bullet points and line breaks added).1 When
a charge is "interest," its rate cannot exceed "the maximum rate
permitted to any state-chartered or licensed lending institution
by the law of [the state where the bank is located]." Id.
§ 7.4001(b). This maximum interest rate is called a "usury limit."
See, e.g., M. Nahas & Co., Inc. v. First Nat. Bank of Hot Springs,
930 F.2d 608, 610 (8th Cir. 1991) (using the term).
If a bank's charge is not "interest," however, then the
guidelines for "deposit account service charges" apply. 12 C.F.R.
§ 7.4002. Deposit account service charges are not subject to usury
limits. See id. A bank may, at its discretion, impose a deposit
account service charge and set its amount, so long as the bank
acts within the bounds of "sound banking judgment and safe and
sound banking principles." Id. § 7.4002(b)(2).
Because the parties draw different conclusions from
regulatory history, we recount that history here. In 2001, OCC
revisited its definition of "interest." OCC said that fees like
"overdraft and returned check charges" imposed by a bank on its
checking account customers were "deposit account services" charges
and not "interest." 66 Fed. Reg. 8178, 8180 (Jan. 30, 2001). OCC
then noted a gap in its regulations: If a bank's overdraft fee
exceeded its returned check fee, then the difference between those
1 These regulations were in effect throughout the alleged
class period here.
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two charges -- its excess overdraft charge -- "could be viewed as
interest within the meaning of [the NBA]." Id. OCC stated that
its regulation "did not expressly resolve this issue" and invited
comment. Id.
OCC published its final rule, set forth above, after the
comment period closed. OCC noted that it had "received numerous
comments" on whether "any portion of the fee imposed by a national
bank when it pays an overdraft" should constitute "interest" under
the NBA. 66 Fed. Reg. 34784, 34787 (July 2, 2001). Given the
"complex and fact-specific concerns" that including "any portion
of a charge imposed in connection with paying an overdraft" in the
definition of "interest" would raise, OCC decided to "not amend[]
[12 C.F.R.] § 7.4001(a) to address this issue." Id.
OCC next addressed excess overdraft fees in Interpretive
Letter 1082 on May 17, 2007. An unnamed bank described its
overdraft fee structure to OCC and asked the agency whether under
the NBA and OCC's regulations it could, "(1) in its discretion,
honor items for which there are insufficient funds in depositors'
accounts and recover the resulting overdraft amounts as part of
the Bank's routine maintenance of these accounts; and
(2) establish, charge and recover overdraft fees from depositors'
accounts for doing so." Office of the Comptroller of the Currency,
Interpretive Letter No. 1082, 2007 WL 5393636, at *1 (May 17,
2007). The bank seeking guidance "charge[d] a Continuous Overdraft
- 6 -
Charge of $5 per business day from the fourth through eleventh
calendar day that an account is overdrawn." Id. at *1 n.3
(emphasis added). OCC noted this and said that the bank's
practices posed no issues under the NBA or the OCC's regulations
interpreting the NBA. Id. at *1. OCC explained that "[c]reating
and recovering overdrafts have long been recognized as elements of
the discretionary deposit account services that banks provide."
Id. at *2.
Citizens Bank is a national bank that offers checking
account services to its customers. When a Citizens Bank customer
overdraws her account, Citizens Bank has two options: It can
either (1) cover the overdraft or (2) decline to cover the
overdraft and return the check.
Citizens Bank charges a fee in both instances. If
Citizens Bank returns a check, it charges a $35 "Returned Item
Fee." If Citizens Bank honors the check, it charges a $35
"Overdraft Fee." If the account remains overdrawn after Citizens
Bank has honored the check and charged the initial overdraft fee,
Citizens Bank then charges a "Sustained Overdraft Fee." It charges
that "Sustained Overdraft Fee" three times: $30 four business
days after the overdraft, another $30 after seven business days,
and a final $30 after ten business days. The complaint does not
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allege that Citizens Bank charges any "Sustained Overdraft Fees"
after the ten-business-day mark.
On the facts presented here, then, Citizens Bank may
charge a customer up to $90 more to honor her overdraft than it
charges her to not cover it. This case considers whether that $90
difference -- Citizens Bank's excess overdraft charge -- is
"interest" under the NBA.
Fawcett filed her complaint in Massachusetts federal
district court on June 7, 2017. The complaint alleges that
Citizens Bank's "Sustained Overdraft Fees" violate the NBA because
they constitute "interest" at a rate above that allowed by Rhode
Island, the state in which Citizens Bank is located.2 See 12
U.S.C. § 85; 12 C.F.R. § 7.4001(b). The complaint does not
challenge either Citizens Bank's "Returned Item Fee" or its
"Overdraft Fee."
Citizens Bank moved to dismiss.3 The district court held
a hearing on that motion and then dismissed Fawcett's complaint
2 The complaint alleges that during the class period the
maximum interest rate allowed in Rhode Island was twenty-one
percent. For purposes of the motion to dismiss, there is no
dispute that Citizens Bank's "Sustained Overdraft Fees" exceeded
that rate.
3 Citizens Bank also moved to stay the case and compel
arbitration. The district court denied that motion. Citizens
Bank has not appealed that denial.
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with a short text order. That order says that the court would
"follow the overwhelming majority of jurisdictions which have
ruled that sustained overdraft fees are not considered interest
under the NBA," apparently referring to cases cited in the
Fawcett timely appealed.
We review de novo the decision to grant a Rule 12(b)(6)
motion to dismiss. Lemelson v. Bloomberg L.P., 903 F.3d 19, 23
(1st Cir. 2018). In doing so, "we accept as true all well-pleaded
facts alleged in the complaint and draw all reasonable inferences
therefrom in the pleader's favor." Id. (quoting Rodríguez-Reyes
v. Molina-Rodríguez, 711 F.3d 49, 52-53 (1st Cir. 2013)).
Throughout, we are mindful that OCC, as the primary
regulator of national banks chartered under the NBA, is entitled
to "great weight" in interpreting the banking laws. Clarke v.
Sec. Indus. Ass'n, 479 U.S. 388, 403–04 (1987) (quoting Inv. Co.
Inst. v. Camp, 401 U.S. 617, 626–27 (1971)); accord Smiley, 517
U.S. at 739 (deferring to OCC under Chevron); NationsBank of N.C.,
N.A. v. Variable Annuity Life Ins. Co., 513 U.S. 251, 257 (1995)
As the law currently stands, Interpretive Letter 1082
resolves this case. The bank that requested OCC's guidance there
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charged a flat excess overdraft charge to customers whose accounts
remained overdrawn after the initial overdraft fee was imposed.
2007 WL 5393636, at *1 n.3. OCC said that practice was consistent
with the NBA and OCC's regulations interpreting the NBA. Id. at
*1. OCC thus concluded that the precise practice here is lawful.4
OCC's interpretation of its own regulations is
controlling under Auer v. Robbins, 519 U.S. 452 (1997).5 Under
Auer, an interpretation is "controlling unless 'plainly erroneous
or inconsistent with the regulation.'" Auer, 519 U.S. at 461
(quoting Robertson v. Methow Valley Citizens Council, 490 U.S.
332, 359 (1989)).6
4 The dissent argues that Interpretive Letter 1082 does
not resolve this issue. But the bank seeking guidance there
"describe[d] in some detail [its] process for honoring and clearing
overdraft items and for establishing, charging, and recovering
overdraft fees." 2007 WL 5393636, at *1. That process included
"charg[ing] a Continuous Overdraft Charge of $5 per business day
from the fourth through eleventh calendar day that an account is
overdrawn." Id. at *1 n.3 (emphasis added). Fawcett specifically
admitted this at oral argument. And OCC noted this practice and
confirmed that the bank's practices were lawful. This cannot be
described as "silence" on the issue of whether flat excess
overdraft charges like that bank's comport with the NBA.
5 At least one circuit has applied Auer deference to OCC's
interpretive letters. See Wells Fargo Bank of Tex. NA v. James,
321 F.3d 488, 494-95 (5th Cir. 2003) (deferring under Auer to a
position OCC advanced in an interpretive letter). And the Supreme
Court has granted Auer deference to interpretations advanced in
even less formal documents, such as an internal advisory
memorandum, e.g., Long Island Care at Home, Ltd. v. Coke, 551 U.S.
158, 171 (2007), and an amicus brief, e.g., Chase Bank USA, N.A.
v. McCoy, 562 U.S. 195, 209 (2011).
6 We recognize that the Supreme Court granted certiorari
in Kisor v. Wilkie, 139 S. Ct. 657 (2018) (No. 18-15), which asks
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Fawcett has made no argument that OCC plainly erred in
interpreting its own regulation or that OCC's interpretation is
inconsistent with the text of its regulation. Fawcett does,
however, advance three arguments for why OCC's interpretation in
Interpretive Letter 1082 otherwise does not merit deference. We
reject each argument in turn.
First, Fawcett argues that Auer deference does not apply
because Interpretive Letter 1082 analyzes OCC's regulation
governing non-interest charges, 12 C.F.R. § 7.4002, not its
"interest" regulation, 12 C.F.R. § 7.4001. This is a non-starter.
The bank asked for OCC's guidance "under the National Bank Act and
[OCC] regulations." 2007 WL 5393636, at *1. And under OCC's
regulations, a charge is either "interest" or it is a "non-interest
charge[]," which includes "deposit account service charges." 12
C.F.R. § 7.4002(a); see id. § 7.4002(c) ("Charges and fees that
are 'interest' within the meaning of [the NBA] are governed by
§ 7.4001 and not by this section."). In classifying the bank's
excess overdraft charges as "deposit account service charges," OCC
necessarily rejected the conclusion that those charges were
Second, Fawcett argues that OCC has advanced internally
inconsistent interpretations of "interest." She points to OCC's
whether Auer should be overruled. At present, however, Auer
remains binding precedent and we apply it as such.
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2001 statement that, in some factual scenarios, "[a] bank that
pays a check drawn against insufficient funds may be viewed as
having extended credit to the accountholder." 66 Fed. Reg. at
8180. This does not at all contradict OCC's later conclusion that,
in cases like this one, a flat excess overdraft charge does not
constitute "interest."
And third, Fawcett appears to argue we should not defer
to OCC's definition of "interest" in 12 C.F.R. § 7.4001 because
that definition simply paraphrases language from the NBA. Smiley,
in which the Supreme Court deferred to OCC's definition of
"interest" in 12 C.F.R. § 7.4001, forecloses this argument. See
517 U.S. at 739.
Because OCC's interpretation in Interpretive Letter 1082
is "consistent with the regulatory text" and not plainly erroneous,
Chase Bank USA, N.A. v. McCoy, 562 U.S. 195, 208 (2011), and
because there is no alternative reason to withhold deference, we
give it deference.
Even absent Auer deference, OCC's interpretation is due
"a measure of deference proportional to the 'thoroughness evident
in its consideration, the validity of its reasoning, its
consistency with earlier and later pronouncements, and all those
factors which give it power to persuade.'" Christopher v.
SmithKline Beecham Corp., 567 U.S. 142, 159 (2012) (quoting United
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States v. Mead Corp., 533 U.S. 218, 228 (2001)). The most salient
of those factors is the validity of OCC's reasoning. See Doe v.
Leavitt, 552 F.3d 75, 82 (1st Cir. 2009).
OCC found that the overdraft fees described to it,
including the flat dollar amount excess overdraft fees, were
deposit account service charges. Those fees compensate the bank
for services "directly connected with the maintenance of a deposit
account." 2007 WL 5393636, at *4. And those are services "that --
pursuant to [the bank's] deposit agreement with the
accountholder -- the accountholder has agreed to pay for." Id.
OCC's conclusion, on the facts here, is persuasive for at least
four reasons: Flat excess overdraft fees (1) arise from the terms
of a bank's deposit account agreement with its customers, (2) are
connected to deposit account services, (3) lack the hallmarks of
an extension of credit, and (4) do not operate like conventional
interest charges.
First, flat excess overdraft fees arise from the terms
of a bank's deposit account agreement with its customers. Even
before Interpretive Letter 1082, the Eleventh Circuit considered
this relevant to whether a charge should be classified as a deposit
account service charge. See Video Trax, Inc. v. NationsBank, N.A.,
33 F. Supp. 2d 1041, 1050 (S.D. Fla. 1998), aff'd, 205 F.3d 1358
(11th Cir. 2000).
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Second, flat excess overdraft fees compensate a bank for
its deposit account services. For instance, such excess overdraft
fees may compensate a bank for the service of continuing to hold
open an overdrawn checking account. See 12 C.F.R. § 7.4002(a)
(stating that a bank "may charge its customers non-interest charges
and fees"). And they may cover the costs incurred in providing
this service, such as costs associated with additional monitoring
to protect the bank against losses from a deposit accountholder
who fails to remedy her overdrawn account. See 70 Fed. Reg. 9127,
9129 (Feb. 24, 2005) (noting that banks "should monitor [overdrawn]
accounts on an ongoing basis"); cf. 12 C.F.R. § 7.4002(b)(2)(iv)
(stating that a bank must consider, among other things, its "safety
and soundness" when setting a non-interest charge). Flat excess
overdraft fees may also advance a bank's compliance with "safe and
sound banking principles," id. § 7.4002(b)(2), by, for example,
deterring customers from misusing those services, id.
§ 7.4002(b)(2)(ii).
Fawcett argues that a flat excess overdraft fee like
Citizens Bank's "Sustained Overdraft Fee" is not associated with
the provision of any deposit account service, but "is more of a
charge in consideration for the time value of money," citing to
Farrell v. Bank of Am., N.A., 224 F. Supp. 3d 1016, 1020-21 (S.D.
Cal. 2016). The preceding discussion amply counters this claim.
- 14 -
Third, flat excess overdraft fees lack the hallmarks of
an extension of credit. Overdraft transactions do not involve a
customer reaching out to the bank to borrow money. And there is
no underwriting here -- Citizens Bank, under its deposit account
agreement, honors the overdraft on the same terms for all its
customers. These features separate flat excess overdraft fees
like Citizens Bank's "Sustained Overdraft Fees" from interest
charges like "late fees" that are "connected with credit extension"
and "[p]ayment[s] compensating a creditor . . . for an extension
of credit." 12 C.F.R. § 7.4001(a).
And fourth, flat excess overdraft fees do not operate
like conventional "interest" charges. A conventional interest
charge involves the application of an established rate to the
principal balance. But the "Sustained Overdraft Fees" here are
each $30 regardless of the amount of the negative balance of the
overdrawn account.
Fawcett argues that some "interest" charges could
nonetheless have a flat amount as opposed to being a rate attached
to an amount owed. She cites Smiley, in which the Supreme Court
noted that there was "no indication" that the NBA's definition of
interest "was limited to charges expressed as a function of time
or of amount owing." 517 U.S. at 745. But the fact that some
flat fees may be "interest" is no proof that it is invalid for OCC
to classify the flat fees here as something other than "interest."
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And in Smiley, the Court considered flat late fees applied to
holders of credit card accounts, not deposit accounts. See id.
We find OCC's reasoning persuasive and hold that
Citizens Bank's "Sustained Overdraft Fees" are "deposit account
service charges," not interest.
Fawcett makes an argument that, in her view, "the
economic reality of banks paying overdrafts" is that the bank is
in fact extending credit to its checking account customers. In
support of this proposition, she points to language in the "Joint
Guidance on Overdraft Protection Programs" that "[w]hen overdrafts
are paid, credit is extended." 70 Fed. Reg. at 9129. The Joint
Guidance was issued in 2005 by four federal bank regulators: the
OCC, the Board of Governors of the Federal Reserve, the Federal
Deposit Insurance Corporation, and the National Credit Union
Administration. Of those four agencies, only OCC is charged with
the responsibility of interpreting and administering the NBA.
The statement in the Joint Guidance is inapplicable here
for several reasons, of which we give a few. First, the Joint
Guidance was not meant to provide OCC's interpretation of the NBA,
nor does it purport to do that. The Joint Guidance's purpose was
to "assist" a variety of "insured depository institutions in the
responsible disclosure and administration of overdraft protection
services." 70 Fed. Reg. at 9127. Second, the Joint Guidance (from
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2005) predates Interpretive Letter 1082 (from 2007), and so is not
OCC's last word on overdraft programs or on flat excess overdraft
fees. And third, the statement that "[w]hen overdrafts are paid,
credit is extended" appears in a section of the Joint Guidance
entitled "Safety and Soundness Considerations." Id. at 9129. That
section warns that overdraft protection programs "may expose an
institution to more credit risk (e.g., higher delinquencies and
losses)." Id. In context, then, the statement is meant only to
acknowledge that if a bank honors an overdraft and the checking
account customer does not replenish her account, the bank will
have to charge off the negative balance, which may pose a "credit
risk" to the institution. Id.
Fawcett's argument, adopted by the dissent, that the
district court erred in not allowing discovery fails. The dissent
says that Fawcett should be allowed to probe "the rationales and
factual basis for Citizens Bank's 'Sustained Overdraft Fees.'"
But Congress entrusted OCC, not inexpert federal judges, with
interpreting "the meaning of the banking laws." Smiley, 517 U.S.
at 739. The dissent's case-by-case approach would upend this
order, at a cost to the clarity needed by the financial industry.
OCC's guidance forecloses this approach. This appeal
concerns a pure question of law and does not turn on discovery.
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* * *
We hold only that flat excess overdraft fees like
Citizens Bank's "Sustained Overdraft Fees" are not "interest"
under the NBA.
Citizens Bank urges a broad ruling that "no fee connected
to the overdraft is interest under § 7.4001." The bank argues
that regulatory history establishes this proposition. We decline
to take such a sweeping approach, given that the considerations
surrounding overdraft fees are, in OCC's words, "complex and factspecific,"
and because we need not adopt such a position to resolve
this case. When "it is not necessary to decide more, it is
necessary not to decide more." PDK Labs. Inc. v. U.S. D.E.A., 362
F.3d 786, 799 (D.C. Cir. 2004) (Roberts, J., concurring in part
and concurring in the judgment).
We affirm.
-Dissenting Opinion Follows-
18 -
LIPEZ, Circuit Judge, dissenting. Although I
acknowledge that this is a close case, I cannot agree with my
colleagues that Barbara Fawcett's complaint should be dismissed as
a matter of law for failure to state a claim. Fawcett insists
that, at a minimum, she is entitled to seek information about the
rationales and factual basis for Citizens Bank's "Sustained
Overdraft Fees." I agree. Accordingly, I respectfully dissent.
Fawcett wisely does not challenge the OCC's
well-established view that, under 12 C.F.R. § 7.4001(a), the fee
imposed when a checking account is first overdrawn is a service
charge rather than interest at least where, as here, the overdraft
fee does not exceed the returned check fee.7 Rather, she challenges
the bank's sustained fees, which are charged over the course of
ten days if an account remains overdrawn. Those fees
unquestionably relate to the accountholder's continuing "use" of
the bank's money over time -- a service for which banks ordinarily
charge interest. Fawcett thus argues that the OCC's treatment of
initial overdraft fees does not support dismissal of her complaint
challenging the sustained fees assessed against her.
7 Citizens Bank's initial "Overdraft Fee" and its "Returned
Item Fee" is the same -- $35. When the charge stemming from an
overdraft does not differ depending on whether the bank advances
funds to the accountholder or refuses to do so, the fee is plainly
for an account service (handling the overdraft) and not for the de
facto "credit" given to the customer whose debit is paid despite
her inadequate funds.
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Fawcett's reasoning draws support from both the OCC's
and Citizens Bank's depiction of typical overdraft practices. The
OCC has described a bank's payment of checks drawn on insufficient
funds as largely a bookkeeping accommodation for its customers:
"Where a customer creates debits on his or her account for amounts
in excess of the funds available in that account, a bank may elect
to honor the overdraft and then recover the overdraft amount as
part of its posting of items and clearing of the depositor's
account." OCC Interpretive Letter No. 1082, 2007 WL 5393636, at
*2 (May 17, 2007). At oral argument before our court, Citizens
Bank similarly explained that, in the ordinary case, banks
providing overdraft coverage at their discretion are merely
resequencing accountholder deposits and withdrawals that will soon
balance out. The resequencing characterization becomes
increasingly inapt, however, when an accountholder's deposits do
not quickly cure the overdraft. That is, as the days pass without
offsetting deposits, the overdraft coverage looks more and more
like a short-term loan. Borrowers typically pay for loans in the
form of interest; hence, Fawcett's theory that the sustained
overdraft charges for delayed payment are in effect interest has
My colleagues hold that Interpretive Letter 1082
conclusively forecloses characterizing Citizens Bank's Sustained
Overdraft Fees as interest, pointing to the Letter's footnote 3 as
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proof that the OCC has deemed "the precise practice here
. . . lawful." Maj. Op. at II.A. In footnote 3, the OCC reports
that the bank whose inquiry prompted the Letter imposes initial
overdraft fees of $23 or $34, depending on the frequency of
overdrafts, and "also may charge a Continuous Overdraft Charge of
$5 per business day from the fourth through eleventh calendar day
that an account is overdrawn." 2007 WL 5393636, at *1 n.3
(emphasis added). Nowhere else in the Letter, however, does the
OCC make specific reference to the continuous charges, and the
Letter contains no analysis of whether those fees constitute
To understand the significance of the footnote, it is
important to recognize what the OCC was specifically addressing in
the Letter. The Letter responded to questions posed by an unnamed
bank that had been sued by plaintiffs who claimed the bank "may
not recover overdraft amounts and fees owed on an account from
public benefits payments deposited in that same account by a
California depositor." Id. at *2. The bank asked whether it could
"honor items for which there are insufficient funds in depositors'
accounts," recover the overdraft amounts as part of its "routine
maintenance of these accounts," and deduct "overdraft fees from
depositors' accounts for doing so." Id. at *1. The bank also
sought confirmation that its overdraft practices did not trigger
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OCC regulations involving the application of "state law to a
national bank's deposit-taking activities." Id.
I cannot conclude that the OCC, in responding to these
questions and making only a passing descriptive reference to the
bank's continuous overdraft charges, decided sub silentio the
important issue of whether such fees constitute interest. To reach
that conclusion, we must disregard the OCC's own observations in
2001, when it revisited the definition of "interest" for purposes
of 12 C.F.R. § 7.001(a).
At that time, the OCC recognized that "[a] bank that
pays a check drawn against insufficient funds may be viewed as
having extended credit to the accountholder." 66 Fed. Reg. 8178-
02, 8180, 2001 WL 68132 (Jan. 30, 2001). In other words, even
from the outset, a bank's payment of a "not sufficient funds"
("NSF") check reasonably could have been characterized as a loan
to its accountholder, with the related fees properly classified as
interest. The agency, however, adhered to its prior view that the
initial overdraft transaction is not an extension of credit, and,
accordingly, the fee imposed should not be treated categorically
as interest under § 7001(a). Importantly, however, the OCC did
not reject classifying some "portion of a charge imposed in
connection with paying an overdraft" as interest. 66 Fed. Reg.
34784-01, 2001 WL 731640, at *34787 (July 2, 2001). In fact, the
OCC declined to decide whether the portion of such a fee that
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exceeds the amount charged when the bank refuses payment may
constitute interest, noting that resolving this question involves
"complex and fact-specific concerns." Id.
Interpretive Letter 1082, which was issued six years
later, simply does not resolve the issue. The OCC was not
specifically asked to consider, and the Letter does not purport to
address, whether any charges exceeding a returned check fee --
which would include the "sustained" fees at issue here --
constitute interest. To be sure, it is possible that the OCC's
cursory reference to the continuous charges means that it saw no
obvious or material distinction between the initial and subsequent
fees. Silence, however, is not guidance, and we would thus need
to infer a ruling on a debated issue from between the lines of the
Letter. I do not see how we can defer to an interpretation that
the OCC never clearly made on an issue that it previously described
as complex and fact-specific.
Nor do I believe the other reasons articulated by the
majority permit us to conclude that Fawcett has failed to plausibly
plead that Citizens Bank's sustained overdraft fees may be interest
charges. It is irrelevant that the "Sustained Overdraft Fees" are
limited in number and duration -- specifically, three charges over
ten days -- and therefore do not resemble classic interest charges.
The Supreme Court has expressly rejected the notion that charges
that "do not vary based on the payment owed or the time period of
- 23 -
delay" cannot constitute interest. Smiley v. Citibank (S.D.),
N.A., 517 U.S. 735, 745 (1996) (internal quotation marks omitted).
In addition, although the sustained fees may reflect payments for
services related to monitoring and maintaining the overdrawn
account, see Maj. Op. at II.B, the majority's speculation about
such services does not justify discrediting the alternative
possibility that the fees are instead designed to deter late
payment and, as "late fees," constitute interest. See 12 C.F.R.
§ 7.4001(a) (listing "late fees" as within "[t]he term 'interest'
as used in 12 U.S.C. § 85").
Likewise, while I agree that it is significant that
Citizens Bank's discretionary decision to fund, or not, its
customers' overdrafts lacks the ordinary hallmark of a lenderdebtor
relationship, see Maj. Op. at II.B, the bank's unilateral
choice to honor or reject an NSF check does not foreclose a
different relationship once a customer has failed to repay the
"loan" via the intended short-term resequencing of credits and
debits. Indeed, an accountholder's failure to promptly cure the
overdraft inevitably puts the bank and its customer on different
footing and allows for the possibility that the ongoing overdraft
charges could constitute interest.
Although the classification of Citizens Bank's Sustained
Overdraft Fees is a question of law, the answer -- as the OCC
acknowledged in 2001 -- could depend on the facts Fawcett seeks to
- 24 -
obtain through discovery. Given that the OCC has declined to
answer that classification question, it is properly our role to
determine the nature of the fees here based on all relevant facts.
Simply put, we should not be deciding as a matter of law, based
solely on the complaint, the "complex and fact-specific" issues
concerning Citizens Bank's sustained fees. 2001 WL 731640, at
I therefore respectfully dissent from my colleagues'
decision to affirm the dismissal of Fawcett's complaint.

Outcome: Affirmed

Plaintiff's Experts:

Defendant's Experts:


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