Minnesota Bankers Association challenges FDIC's NSF rule

Bloomberg News

WASHINGTON — The Minnesota Bankers Association and Lake Central Bank filed a joint lawsuit Thursday against the Federal Deposit Insurance Corp. for amending its disclosure regulations for nonsufficient funds fees on re-presented checks, arguing that the agency's inclusion of "unfair or deceptive acts or practices" criteria violated the law. 

"The FDIC did not have authority to amend existing bank disclosure regulations and did not have authority to issue a substantive UDAP rule," the association wrote in a release. "Even if the FDIC did have authority to take those steps, the lawsuit claims the agency failed to follow the mandatory rulemaking process."

The FDIC issued a new rule on NSF fees last August, which included a provision holding that repeated NSF fees could constitute a UDAP violation under the Federal trade Commission Act of 1914. The provision, included in Title V of the statute, is not to be confused with the Consumer Financial Protection Bureau's similar Unfair, Deceptive or Abusive Acts or Practices provision under Dodd-Frank.

According to their release, the MBA — which represents most of the banks in the state — alleges that FDIC violated the Administrative Procedure Act in its rulemaking process. The lawsuit, filed in the Federal District Court of Minnesota, seeks to address specific procedural matters related to the FDIC's determination that repeated NSF fees could constitute a UDAP violation. 

The FDIC has repeatedly warned banks it's willing to take disciplinary action if it sees banks repeatedly charging NSF fees for the same transaction. Last year, the FDIC released guidelines indicating those kinds of practices could break the law.

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The Biden administration has generally taken a harsher tone toward fees of all kinds banks impose on customers, particularly what it dubs "junk fees," many of which they say are unfair. Though recent years saw a diminishing number of banks charging them, as the MBA's release indicates, fees remain a contentious issue. 

The FDIC and Office of the Comptroller of the Currency issued coordinated notices in April taking aim at banks that charge repeated overdraft or NSF fees on the same transaction, saying banks should implement fees and practices that bear a reasonable relationship to the price they pay to provide such overdraft protection program services.