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Fawcett v. Citizens Bank, N.A.

United States Court of Appeals, First Circuit

March 26, 2019

BARBARA FAWCETT, individually and on behalf of all others similarly situated, Plaintiff, Appellant,
CITIZENS BANK, N.A., Defendant, Appellee.


          Edward F. Haber, with whom Patrick J. Vallely and Shapiro Haber & Urmy LLP were on brief, for appellant.

          David J. Zimmer, with whom Brenda R. Sharton and Goodwin Procter LLP 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 (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 (1996) (citing Chevron U.S.A. Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837, 842-45 (1984)).

         OCC has, in regulations promulgated after notice and comment, defined the term "interest" as used in Section 85 of the NBA:

The term 'interest' as used in 12 U.S.C. [§] 85 includes any payment compensating a creditor or prospective creditor for an extension of credit, making available of a line of credit, or any default or breach by a borrower of a condition upon which credit was extended.
It includes, among other things, the following fees connected with credit extension or availability:
• numerical periodic rates,
• late fees,
• creditor-imposed not sufficient funds (NSF) fees charged when a borrower tenders payment on a debt with a check drawn on insufficient funds,
• overlimit fees,
• annual fees,
• cash advance fees, and .
• membership fees.
It does not ordinarily include appraisal fees, premiums and commissions attributable to insurance guaranteeing repayment of any extension of credit, finders' fees, fees for document preparation or notarization, or fees incurred to obtain credit reports.

12 C.F.R. § 7.4001(a) (bullet points and line breaks added).[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 ...

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