Fawcett v. Citizens Bank, N.A.
| Decision Date | 26 March 2019 |
| Docket Number | No. 18-1443,18-1443 |
| Citation | 919 F.3d 133 |
| Parties | Barbara FAWCETT, individually and on behalf of all others similarly situated, Plaintiff, Appellant, v. CITIZENS BANK, N.A., Defendant, Appellee. |
| Court | U.S. Court of Appeals — First Circuit |
Edward F. Haber, with whom Patrick J. Vallely and Shapiro Haber & Urmy LLP, Boston, MA, were on brief, for appellant.
David J. Zimmer, with whom Brenda R. Sharton and Goodwin Procter LLP, Boston, MA, were on brief, for appellee.
Before Howard, Chief Judge, Lynch and Lipez, Circuit Judges.
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, 127 S.Ct. 1559, 167 L.Ed.2d 389 (2007).
The NBA allows a national bank to charge "interest at the rate allowed by the laws of the State ... where the bank is 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, 116 S.Ct. 1730, 135 L.Ed.2d 25 (1996) (citing Chevron U.S.A. Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837, 842-45, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984) ).
OCC has, in regulations promulgated after notice and comment, defined the term "interest" as used in Section 85 of the NBA:
12 C.F.R. § 7.4001(a) ().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 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 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 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 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 briefing.
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, 107 S.Ct. 750, 93 L.Ed.2d 757 (1987) (quoting Inv. Co. Inst. v. Camp, 401 U.S. 617, 626–27, 91 S.Ct. 1091, 28 L.Ed.2d 367 (1971) ); accord Smiley, 517 U.S. at 739, 116 S.Ct. 1730 (deferring to OCC under Chevron ); NationsBank of N.C., N.A. v. Variable Annuity Life Ins. Co., 513 U.S. 251, 257, 115 S.Ct. 810, 130 L.Ed.2d 740 (1995) (same).
As the law currently stands, Interpretive Letter 1082 resolves this case. The bank that requested OCC's guidance there 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...
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