On February 14, 2024, the Minnesota Bankers Association and Lake Central Bank (the “Plaintiffs”) filed their memorandum in opposition to the Federal Deposit Insurance Corporation’s (FDIC) motion to dismiss their challenge to the FDIC’s supervisory guidance on NSF fees.

In June 2023, the Plaintiffs filed a complaint seeking declaratory and injunctive relief under the Administrative Procedures Act (APA) against defendants FDIC and Chairman Martin J. Gruenberg for the FDIC’s issuance of supervisory guidance under Financial Institutions Letter 40-2022: Supervisory Guidance on Multiple Re-Presentment NSF Fees (“FIL 40”) prohibiting FDIC supervised banks from charging multiple non-sufficient funds (NSF) fees for the same item. The complaint alleges that FIL 40 is a legislative rule promulgated without adherence to the APA’s notice and comment rulemaking process, resulting in an arbitrary and capricious agency action, and that the FDIC exceeded its statutory authority.

In September 2023, the FDIC filed a motion to dismiss the lawsuit pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6). In its motion to dismiss, the FDIC asserts that the lawsuit should be dismissed because the Plaintiffs asked the court to invalidate FIL 40 even though Financial Institutions Letter 32-2023: FDIC Clarifying Supervisory Approach Regarding Supervisory Guidance on Multiple Re-Presentment NSF Fees (“FIL 32”) replaced FIL 40 and is FIL 32 the operative guidance document. In support of its motion to dismiss, the FDIC argues:

  1. The Plaintiffs lack standing to sue the FDIC because they cannot show that their claimed injuries are redressable by a ruling in their favor.
  2. Even if the Plaintiffs had standing, they have failed to state a claim because FIL 32 does not constitute final agency action and is not subject to review under the APA as the FDIC has consistently characterized FIL 32 and FIL 40 as guidance, did not publish either FIL 32 (or FIL 40) in the Federal Register or the Code of Federal Regulations, and designed both FILs to avoid creating binding effects or imposing legal consequences.
  3. The Plaintiffs have failed to state a claim because FIL 32 is not arbitrary or capricious. The APA’s “arbitrary or capricious” standard governs final agency action and FIL 32 does not qualify as final agency action.
  4. The Plaintiffs have failed to state a claim because the FDIC did not exceed its statutory authority by defining specific acts or practices to be deceptive in FIL 32.
  5. The Plaintiffs cannot, by attacking FIL 32, limit the FDIC’s discretion to address unsafe and unsound banking practices using the tools available to it, including enforcement actions.
  6. The Plaintiffs’ claims are unripe because FIL 32 is not a final agency action.

In the Plaintiffs’ 34-page memorandum in opposition to the FDIC’s motion to dismiss, the Plaintiffs argue that their amended complaint pleads plausible APA claims that are ripe for review, the Plaintiffs have standing to sue, and the court should vacate FIL 32. The memorandum further argues:

  1. FDIC Has No Rulemaking Authority. The Truth in Savings Act and the Electronic Funds Transfer Act entrusts any legislative rulemaking authority related to NSF fees to the Consumer Financial Protection Bureau (“CFPB”), not the FDIC. The FTC Act does not authorize the FDIC to issue legislative rules that define specific practices as unfair or deceptive. Under the Dodd-Frank Act UDAAP provisions, the CFPB is exclusively granted rulemaking authority to identify specific unlawful acts or practices and to prescribe consumer disclosure requirements.
  2. FIL 32 Is a Final Agency Action Imposing Obligations and Legal Consequences. FIL 32 was issued to regulate re-presentment NSF fees and identifies required disclosures, mitigation steps, and corrective action. FIL 32 further threatens enforcement actions for failure to remediate multiple re-presentment NSF fee practices.
  3. FDIC Has Enforced FIL 32. The FDIC’s March 2023 Consumer Compliance Supervisory Highlights disclose that UDAP violations were found “most frequently when financial institutions charged multiple non-sufficient funds (NSF) fees for the re-presentment of the same transaction and disclosures did not fully or clearly describe the financial institution’s re-presentment practice.”
  4. The Plaintiffs Have Suffered Redressable Injuries. First, the FDIC has not followed the APA by allowing for notice and comment. Second, the Plaintiffs have faced increased compliance costs under FIL 32 with respect to new disclosures, additional procedures and processes, and other actions and the risk of enforcement. Third, the Plaintiffs do not need to wait for an enforcement proceeding to bring a challenge. Lastly, the vacation of FIL 32 will redress the Plaintiff’s injuries.
  5. FDIC’s Intent and General Supervisory Authority Do Not Matter. The FDIC’s intent is not determinative nor is its intent entitled Chevron deference. (Note: Chevron deference is currently under review by the U.S. Supreme Court.) Broad supervisory authority to regulate unsafe and unsound practices is not addressed in FIL 32. Instead, the FDIC cited to its UDAP authority.