Banking Industry Challenges FDIC Declaration Regarding Non-Sufficient Funds Fees
ABSTRACT: The banking industry and financial services business groups have asked the 8th Circuit to vacate an FDIC declaration regarding non-sufficient funds fees constituting an unfair or deceptive trade practice in violation of the Federal Trade Commission Act.
We have our eyes on litigation before the 8th Circuit seeking to vacate the Federal Deposit Insurance Corporation’s (“FDIC”) declaration that inadequately disclosed or alerted non-sufficient funds fees arising from the re-presentment of the same unpaid transaction constitute an unfair or deceptive trade practice in violation of the Federal Trade Commission Act. On July 25, 2024, the Minnesota Bankers Association and Lake Central Bank appealed a dismissal of litigation challenging a declaration made by the FDIC related to fees charged by banks for non-sufficient funds transactions.
The Minnesota Bankers Association challenges the declaration asserting that the declaration failed to comply with the procedural requirements of the Administrative Procedure Act (“APA”), and that the FDIC lacks authority to define unfair or deceptive trade practices and therefore exceeded its enforcement authority. Bankers groups from across the nation have filed Amicus Briefs supporting the position asserted by the Minnesota Bankers Association.
Re-Presentment of Non-Sufficient Funds Fees and the FDIC Declaration
The heart of the litigation pursued by the Minnesota Bankers Association relates to how banks deal with notifying consumers regarding fees related to non-sufficient funds. Specifically, how banks deal with notifying and charging consumers when a merchant resubmits an attempted charge which the bank has already rejected because the consumer’s account lacks sufficient funds to pay the charge.
A core issue of the litigation is determining whether banks must bear the cost of installing systems that monitor the conduct of merchants such that a re-presentment of a transaction by a merchant could be identified. Generally, a bank system would likely only process each transaction submitted to it without processing the details of each transaction to allow a duplicative transaction to be caught before attempting to satisfy the transaction from the consumer’s funds.
On June 16, 2023, the FDIC issued Financial Institutions Letter 32, which it considers issuance of supervisory guidance to banking institutions to make them aware of compliance risks associated with assessing multiple nonsufficient funds fees from the same unpaid transaction. Letter 32 included the FDIC’s guidance of when banks would be expected to take corrective action.
Letter 32 identifies the circumstances where the FDIC deems a financial institution’s disclosures, regarding re-presentment of non-sufficient funds fees, to constitute unfair or deceptive practices. Letter 32 specifically identifies unfair or deceptive practices as including: (1) a failure to disclose the possibility of multiple fees for a single transaction submitted by a merchant multiple times; (2) failing to detail the maximum number of fees that can be charged in connection with a single transaction; (3) failing to ensure a consumer has the ability to effectively avoid multiple fees for re-presented charges; and (4) a number of other practices.
Minnesota Bankers Association’s Challenges to Letter 32
The banking industry alleges that Letter 32 constitutes a final agency action under the APA, which did not comply with the notice and comment requirements of the APA; the District Court dismissed the action, in part, because it found Letter 32 did not constitute a final action. The Minnesota Bankers Association cites to Letter 32’s mandatory terms, the fact that it binds FDIC examiners, creates safe harbors for banks, and expands the definition of what constitutes an unfair or deceptive practice under the Federal Trade Commission Act.
The banking industry also alleges that its member institutions will suffer substantive injuries because of increased costs associated with implementing systems that address the notice to consumers issues outlined in Letter 32; the District Court found no redressable injury because banks are obligated not to engage in deceptive and unfair practices.
Amicus Briefs in Support of the Minnesota Bankers Association
The American Bankers Association (“ABA”) filed an Amicus Brief in support of the Minnesota Bankers Association on behalf of itself, its members, and 44 state bankers associations. The ABA’s brief argues that Letter 32 constitutes an unauthorized agency action because the FDIC lacks authority to determine what constitutes unfair or deceptive trade practices in addition to arguing Letter 32 constitutes a final agency action.
The Missouri Bankers Association filed its own Amicus Brief in support of the Minnesota Bankers Association. The Missouri Bankers Association contends: (1) Letter 32 is a legislative rule because it defines unfair or deceptive practices with specificity; (2) the FDIC lacked congressional authority to issue Letter 32; (3) the FDIC failed to conduct requisite notice and comment rulemaking in issuing Letter 32; and (4) the Letter is subject to immediate judicial review.
Additionally, an Amicus Brief was filed by the Electronic Funds Transfer provider, ITS, Inc., for one of the banks named as a Plaintiff in the initial action. ITS, Inc.’s brief details the financial burden created by attempting to comply with the guidance provided by Letter 32.
Baker Sterchi attorneys will continue to monitor the litigation arising out of the FDIC’s Letter 32. Contact our Financial Services Practice Group for more information.related services
Missouri's New Commercial Financing Disclosure Law And Its Impact On Small Businesses And Lenders ...
CFPB has joined the game – Identifies Consumer risks in virtual worlds and video games ...
About Financial Services Law Blog
Baker Sterchi's Financial Services Law Blog explores current events, litigation trends, regulations, and hot topics in the financial services industry. This blog informs readers of issues affecting a wide range of financial services, including mortgage lending, auto finance, and credit card/retail transactions. Learn more about the editor, Megan Stumph-Turner, and our Financial Services practice.
Subscribe via email
Subscribe to rss feeds
RSS FeedsABOUT baker sterchi blogs
Baker Sterchi Cowden & Rice LLC (Baker Sterchi) publishes this website as a service to our clients, colleagues and others, for informational purposes only. These materials are not intended to create an attorney-client relationship, and are not a substitute for sound legal advice. You should not base any action or lack of action on any information included in our website, without first seeking appropriate legal or other professional advice. If you contact us through our website or via email, no attorney-client relationship is created, and no confidential information should be transmitted. Communication with Baker Sterchi by e-mail or other transmissions over the Internet may not be secure, and you should not send confidential electronic messages that are not adequately encrypted.
The hiring of an attorney is an important decision, which should not be based solely on information appearing on our website. To the extent our website has provided links to other Internet resources, those links are not under our control, and we are not responsible for their content. We do our best to provide you current, accurate information; however, we cannot guarantee that this information is the most current, correct or complete. In addition, you should not take this information as a promise or indication of future results.
Disclaimer
The Financial Services Law Blog is made available by Baker Sterchi Cowden & Rice LLC for educational purposes only as well as to give you general information and a general understanding of the law, not to provide specific legal advice. Your use of this blog site alone creates no attorney client relationship between you and the firm.
Confidential information
Do not include confidential information in comments or other feedback or messages related to the Financial Services Law Blog, as these are neither confidential nor secure methods of communicating with attorneys. The Financial Services Law Blog should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.