341 F. Supp. 3d 675
N.D. Tex.2018Background
- Plaintiff Sharonda Johnson had a Bank of Texas (BOKF division) checking account governed by an Agreement that allowed the bank to pay or return items and to charge initial Overdraft Fees and, if an account remained overdrawn more than five business days, recurring Extended Overdraft Fees.
- Johnson was charged an initial overdraft fee in July 2016 and then daily Extended Overdraft Fees ($6.50) for eight business days while her account remained overdrawn (max negative balance ~$473.80).
- Johnson filed a putative class action alleging the Extended Overdraft Fee is actually interest (a flat late fee for use/forbearance of money) and therefore violative of the National Banking Act’s usury limits; she did not challenge initial overdraft fees.
- BOKF moved to dismiss; Judge Boyle granted the first motion with leave to amend; Johnson filed an amended complaint and BOKF renewed its motion to dismiss.
- The Court analyzed whether extended overdraft fees are "interest" under the NBA and whether prior authority and regulatory interpretations support treating them as interest.
- The Court concluded the majority of federal district courts and persuasive OCC guidance treat overdraft charges on deposit accounts as fees, not interest, and dismissed Johnson’s claims with prejudice.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Extended Overdraft Fees are "interest" under the National Banking Act | Johnson: Extended overdraft fees are interest for use/forbearance of money; treating overdraft coverage as extension of credit converts fees into interest subject to NBA usury limits | BOKF: Extended overdraft fees are contractual fees for account mismanagement, not interest; majority precedent and OCC interpretations support that view | Court: Fees are not interest; plaintiff’s theory fails and claims dismissed with prejudice |
| Whether bank’s covering of an overdraft constitutes a "loan/credit" that triggers NBA usury rules | Johnson: Bank’s payment of overdrafts is an extension of credit (supported by internal GAAP labels and some regulatory materials) | BOKF: Payment of overdrafts in deposit-account context does not make bank a creditor; GAAP or internal accounting labels are not determinative of legal status | Court: Payment-of-overdraft-as-credit argument rejected; accounting treatment insufficient to convert fees into interest |
| Whether OCC regulation/definitions support treating overdraft fees as interest | Johnson: OCC’s broad definition of ‘‘interest’’ can encompass extended overdraft fees | BOKF: OCC guidance and amendments actually support treating overdraft charges as fees; prior courts have relied on OCC authority to reject plaintiff’s view | Court: Declines to interpret OCC definition to include extended overdraft fees; follows majority practice rejecting Johnson’s OCC-based argument |
| Whether this Court should follow the outlier Farrell decision | Johnson: Urged Court to align with Farrell (holding sustained overdraft fees are interest) | BOKF: Majority of district courts disfavors Farrell; Farrell is an outlier | Court: Declines to follow Farrell and adopts the majority approach rejecting the claim that overdraft fees are interest |
Key Cases Cited
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (pleading must state a plausible claim to relief)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (courts need not accept conclusory allegations)
- Smiley v. CitiBank, N.A., 517 U.S. 735 (1996) (deference to OCC interpretations of banking statutes and regulations)
- Moore v. MB Fin. Bank, N.A., 280 F. Supp. 3d 1069 (N.D. Ill. 2017) (extended overdraft fees are not interest)
- In re TD Bank, N.A. Debit Card Overdraft Fee Litig., 150 F. Supp. 3d 593 (D.S.C. 2015) (same)
- Farrell v. Bank of Am., N.A., 224 F. Supp. 3d 1016 (S.D. Cal. 2016) (outlier decision treating sustained overdraft fees as interest)
- Great Plains Trust Co. v. Morgan Stanley Dean Witter & Co., 313 F.3d 305 (5th Cir. 2002) (standard for evaluating pleadings on a motion to dismiss)