Court dismisses MBA lawsuit over NSF fees

A 2023 lawsuit, which pitted the Minnesota Bankers Association and one of its member banks against the FDIC, was dismissed without prejudice in federal court on April 8. 

The suit, originally filed July 20, 2023, challenged the FDIC’s guidance on NSF fees, alleging the FDIC lacked the authority to change existing bank disclosure requirements and issue an Unfair and Deceptive Acts or Practices rule on NSF fees. The suit also accused the FDIC of violating the Administrative Procedure Act by bypassing input from regulated financial institutions and the public before issuing the rule.  

The guidance at the heart of the lawsuit is FIL-40 (2022), which asks banks to revise its disclosure documents around item re-presentment and eliminate fees or not charge more than one fee per transaction. The letter states that the FDIC expects banks to review their NSF fee collection practices and repay fees collected on transactions involving any item presented more than once. The FDIC later clarified that “it did not expect banks to conduct a look-back unless there was a likelihood of substantial consumer harm.”

Annandale, Minn.-based Lake Central Bank joined the MBA as co-plaintiff.

According to the original suit, the FDIC’s guidance was causing banks to be wary of collecting fees for a service they were required to provide. Lake Central reportedly didn’t have an automated process to reliably identify re-presentments. “The FDIC failed to consider that banks are necessarily dependent upon automated systems, which may not have sufficient information to identify a payment as a re-presentment,” the lawsuit stated.

In an article published by BankBeat in January, Bryan Bruns, president and CEO of the $217 million Lake Central Bank, explained why his bank joined the MBA’s suit: “It’s not really about the fees; it’s about the process,” Bruns said. “I don’t think they followed the process, and in this case at least, I don’t think they have the authority to do this to begin with.”

Last September, the FDIC filed for the suit to be dismissed, calling it “a transparent effort to avoid the possibility of future enforcement actions related to charging multiple NSF fees, regardless of the risks posed by those practices.”

At that time, the FDIC said the lawsuit lacked constitutional standing. It said the guidance was “intended to provide exactly that – guidance – to assist financial institutions in avoiding potential enforcement.”

Ultimately, the court found that the plaintiffs lacked standing because they “have not established that their alleged injury would be redressed by the relief they request.” The court also stated “supervisory guidance does not have the force and effect of law but merely outlines the FDIC’s expectations or priorities and articulates the FDIC’s general vows regarding appropriate practices for a given subject area.”

Judgment was made by Paul A. Magnuson of the U.S. District Court in Minnesota.

MBA President and CEO Joe Witt expressed disappointment in the ruling. “We thought that we had met the requirements of having standing in this lawsuit,” he said April 12.  

Witt expects the MBA board will decide whether to refile the case in less than a month. “That is the question that we’re working with internally, as well as our outside counsel, to analyze what our options are,” he added. 

 “It’s something we will have to give some serious consideration to.”