In a split decision, the United States Court of Appeals for the Tenth 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 and claimed they constituted usurious loans.  See Walker v. BOKF, Nat’l Ass’n, 2022 U.S. App. LEXIS 9708 (10th Cir. Apr. 8, 2022).  The plaintiff in the action holds a checking account with BOKF, National Association (the “Bank”).  Plaintiff overdrew his checking account by $25.00 and the Bank paid the overdrafted amount.  The Bank then charged him a $34.50 overdraft fee and, after his account balance remained negative for more than five days, $6.50 as an “Extended Overdraft Charge” for each additional business day the account balance was negative.  The Bank made 36 overdraft charges against Plaintiff in total before Plaintiff made a sufficient deposit.  Plaintiff then brought this action, arguing that the extended overdraft fees were interest that exceed the usury limit set forth in the National Bank Act of 1864 (the “NBA”).  See 12 U.S.C. 85.  Under the NBA, banks cannot charge interest rates greater than the rate allowed by the state where the bank is chartered.  Here, the Bank is chartered in Oklahoma, which caps rates at 6%.  The Bank moved to dismiss and the District Court granted the motion, hodling that these overdraft fees were fees for “deposit account services” rather than interest and that they did not violate the NBA.

On appeal, the Court affirmed.  The majority held that the Office of the Comptroller of Currency (the “OCC”) issued Interpretive Letter 1082 in 2001 to address this specific issue.  In the letter, the OCC found that overdraft fees compensate banks for “services directly connected with the maintenance of a deposit account,” and “therefore the bank was not creating a ‘debt’ that it then ‘collected’ by recovering the overdraft and the overdraft fee from the account. Instead, the bank was ‘providing a service to its depositors’ that the accountholder had agreed to pay for.”  Accordingly, 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), as opposed to interest under § 7.4001(a).  The Court also found that the OCC’s interpretive letter was entitled to Auer deference because § 7.4001(a) is ambiguous, the OCC’s interpretation is reasonable, and  “the character and context of the agency interpretation entitles it to controlling weight.”  Accordingly, the Court affirmed the dismissal.

In dissent, Judge Eid argued that regulation is not ambiguous because the overdraft fees meet the regulatory definition of “interest.”  “When [the Bank] decides to cover a customer’s overdraft, it pays for the item and expects to be paid back. For example, despite [Plaintiff’s] inability to afford the original charge due to insufficient funds, [the Bank] made money available to him by purchasing the item for him. [The Bank] deducted the cost from [Plaintiff’s] account and charged him an overdraft fee, which it also deducted. But the bank expected to be paid back. By covering an overdraft, [the Bank] thus makes a temporary provision of money with the expectation of repayment. In other words, [the Bank] makes a loan.”