Court Rules Bank’s Extended Overdraft Fee is Not ‘Interest’

CUT0day

DENVER–A divided panel of the U.S. Court of Appeals for the 10^th Circuit has ruled that one national bank’s extended overdraft fee is not “interest” under the National Bank Act (NBA).

The court ruled in Walker v. BOKF, National Association that the extended overdraft fees charged by BOKF were not “interest” under the National Bank Act (NBA).  The Tenth Circuit’s ruling on what it called “an issue of first impression in this circuit” follows similar rulings by the First and Fifth Circuits, Consumer Finance Monitor reported.

“The plaintiff had a checking account with BOKF.  When presented with an item that overdrew the plaintiff’s account, BOKF elected to pay the item and charged the plaintiff an initial overdraft fee of $34.50,” Consumer Finance Monitor reported. “On the sixth day following the overdraft, BOKF began imposing an extended overdraft fee of $6.50 per business day.  The plaintiff’s account remained overdrawn for nearly two months, resulting in the assessment of 36 separate extended overdraft fees totaling $234.00.”

‘Usurious’ Rates Alleged

In the putative class action complaint, the plaintiff alleged that because the extended overdraft fees were “interest” under the NBA, the charges were usurious under Section 85 of the NBA (The plaintiff did not challenge the initial overdraft fee.), according to Consumer Financial Monitor, which noted  Section 85 allows a national bank to charge “interest at the rate allowed by the laws of the State…where the bank is located.” 

“Accordingly, the plaintiff alleged that as a bank located in Oklahoma, BOKF was subject to Oklahoma’s 6% per annum rate limit, and that the $234 in extended overdraft fees charged by BOKF was usurious because the fees translated to an effective annual interest rate of 501% or more,” Consumer Finance Monitor continued. “The district court granted BOKF’s motion to dismiss, agreeing with BOKF that the extended overdraft fees were not interest under the NBA and therefore not subject to the Oklahoma rate limit.”

OCC Rules Cited

In affirming the district court’s dismissal of the complaint, the Tenth Circuit first identified two OCC regulations relevant to what charges qualify as “interest” under the NBA, the report added.

The court also cited a 2007 OCC Interpretive Letter from the OCC that affirmed the bank’s pricing policies.

According to the report, the Tenth Circuit found two sections of the NBA to be ambiguous as to whether overdraft fees constitute interest or non-interest charges and that the OCC’s determination in its Interpretive Letter that extended overdraft fees are “deposit account service charges” under 7.4002 was a reasonable interpretation.