December 29, 2021

Fifth Circuit Affirms Dismissal in Overdraft Charges Dispute

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The United States Court of Appeals for the Fifth Circuit recently affirmed a lower court's dismissal in a suit in which a customer of a bank challenged the bank's overdraft charge practices. See Johnson v. BOKF Nat'l Ass'n, 15 F.4th 356 (5th Cir. 2021). Plaintiff Sharonda Johnson, who holds a checking account with BOKF, National Association (the "Bank"), filed a putative class action challenging "Extended Overdraft Charges" assessed by the Bank, which were charged to her after she overdrew on her checking account in 2016. Extended Overdraft Charges are what the Bank terms the fees it charges to customers who overdraw on their checking accounts and fail to timely pay the Bank for covering the overdraft. Johnson alleges that when the Bank paid her overdraft, it extended her credit, and that the Extended Overdraft Charges the Bank assessed her when she did not reimburse the Bank timely for covering her overdraft constitute interest upon this extension of credit within the meaning of § 85 of the National Bank Act of 1864 (the "NBA"), which authorized national banks to charge "interest at the rate allowed by the law of the State . . . where the bank is located."  The District Court dismissed the complaint, and Johnson appealed.

In its de novo review of the lower court's dismissal, the Fifth Circuit rejected Johnson's argument, instead deferring to the Office of the Comptroller of Currency's (OCC) interpretation that Extended Overdraft Charges are not interest within the meaning of the NBA. In Interpretive Letter 1082, the OCC determined that the overdraft fees imposed by a bank constituted charges for non-interest deposit account services under 12 C.F.R.§ 7.4002(a).  The Fifth Circuit then looked to recent Supreme Court reaffirmation in Kisor v. Wilkie 139 S. Ct. 2400 (2019) that courts should defer to an agency's reasonable interpretation of its own regulations when the regulation's text is "genuinely ambiguous," and the "character and context of the agency's interpretation entitles it to controlling weight." When applicable, this deference regime, referred to as Auer deference, dictates that an agency's interpretation is "controlling unless ‘plainly erroneous or inconsistent with the regulation.'"

To determine whether to grant Auer deference, the Fifth Circuit looked to OCC commentary that suggested that the history of § 7.4001(a) supports the conclusion that the rule is truly ambiguous as to whether excess overdraft fees like the ones Johnson challenged fell within its scope. The Court also determined that the OCC's determination that these sorts of fees are classified as deposit account services, and not a new loan, was reasonable. Finally, the Court characterized Interpretive Letter 1082 as an "authoritative statement" drafted by a senior OCC official, fitting squarely within the agency's expertise and strongly indicating that it represents the OCC's official position on the matter of whether Extended Overdraft Charges should be classified as non-interest charges, thus entitling the Interpretive Letter to controlling weight on the matter. This led the court to conclude that Extended Overdraft Charges are non-interest charges, not subject to the NBA's usury limits.

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