Walker v. BOKF, Nat'l Ass'n

30 F.4th 994

Berkley V. WALKER, on behalf of himself and all others similarly situated, Plaintiff - Appellant,

v.BOKF, NATIONAL ASSOCIATION, d/b/a Bank of Albuquerque, N.A., Defendant - Appellee.

No. 20-2046

United States Court of Appeals, Tenth Circuit.

FILED April 8, 2022

J. Aaron Lawson, Edelson PC, San Francisco, California (Ryan D. Andrews and Roger Perlstadt, Edelson PC, Chicago, Illinois, with him on the briefs), appearing for Appellant.

Sarah Wishard Poston (J. Michael Medina with her on the briefs), Frederic Dorwart Lawyers PLLC, Tulsa, Oklahoma, appearing for Appellee.

Before MATHESON, BRISCOE, and EID, Circuit Judges.

BRISCOE, Circuit Judge.

This appeal asks us to rule on an issue of first impression in this circuit: whether extended overdraft charges made to a checking account are "interest" charges governed by 12 C.F.R. § 7.4001, or "non-interest charges and fees" for "deposit account services" governed by 12 C.F.R. § 7.4002.

Berkley V. Walker holds a checking account at the national bank BOKF, National Association, d/b/a Bank of Albuquerque, N.A. ("BOKF"). He filed this putative class action challenging BOKF's "Extended Overdraft Fees," claiming they are in violation of the interest rate limit set by the National Bank Act of 1864 ("NBA"), codified at 12 U.S.C. § 85. The NBA provides a private cause of action to parties who have been charged interest exceeding the usury limit and permits recovery of "twice the amount of the interest thus paid." 12 U.S.C. § 86.

BOKF charged Walker Extended Overdraft Fees after he overdrew his checking account, BOKF elected to pay the overdraft, and then Walker failed to timely pay BOKF for covering the overdraft. Walker alleges that when he overdrew his account and BOKF paid his overdraft, BOKF was extending him credit and this extension of credit was akin to a loan. Walker argues that the Extended Overdraft Fees of $6.50 he was charged for each business day his account remained negative after a grace period constituted "interest" upon this extension of credit and were in excess of the interest rate limit set by the NBA.

The district court concluded that BOKF's Extended Overdraft Fees were fees for "deposit account services" and were not "interest" under the NBA. The district court granted BOKF's motion to dismiss under Rule 12(b)(6) and dismissed Walker's action for failure to state a claim. Exercising jurisdiction under 28 U.S.C. § 1291, we affirm.

I

Walker maintains a checking account with BOKF. ROA, at 8a. Walker's checking account is subject to BOKF's Depository Agreement for Transaction Accounts, which is part of BOKF's Agreement and Disclosures. Id. at 9a–12a, 47a. The account agreement creates a system of procedures and attendant fees in the event an accountholder draws on his account when the funds are not sufficient to cover the charge—i.e., an overdraft. Id. at 54a. The account agreement gives BOKF two options when a customer overdrafts his account: (1) the bank can "refuse to pay the item, without giving [the accountholder] prior notice, and charge a Returned Item Fee at the rate set in the Summary of Fees," or (2) the bank can "elect to pay the item, in which case [the bank] will charge the Overdraft Fee at the rate set in the Summary of Fees and deduct the amount of the overdraft and the Overdraft Fee from the next deposit." Id. The Returned Item Fee and the Overdraft Fee are both $34.50. Id. at 71a. If the account remains overdrawn for five business days after the item is paid and an initial overdraft fee is charged, BOKF may charge an additional Extended Overdraft Fee of $6.50 per business day.¹ Id. at 54a, 71a.

On January 19, 2017, Walker overdrew funds from his account in the sum of approximately $25.00. Id. at 13a. BOKF elected to cover the cost of the item and charged Walker an initial overdraft fee of $34.50. Id. Walker did not promptly pay back this balance. Id. On the sixth business day following Walker's initial overdraft, BOKF began imposing the Extended Overdraft Fee of $6.50 per business day. Id. Walker's account remained overdrawn until March 17, 2017. Id. Accordingly, BOKF assessed thirty-six separate overdraft fees, which totaled $234.00. Id.

On August 22, 2018, Walker filed this proposed class action in the United States District Court for the District of New Mexico. Walker asserted one claim, alleging that BOKF's Extended Overdraft Fees qualify as interest under the NBA and, as a result, the amount charged violates the NBA's anti-usury provisions.² The NBA prohibits banks from charging interest rates greater than "the rate allowed by the laws of the State ... where the bank is located," and a bank is "located" in the state where it is chartered. See 12 U.S.C. § 85. BOKF is chartered in Oklahoma, and Oklahoma's maximum annualized interest rate is 6%. ROA, at 17a–18a. Walker alleges that the $234.00 BOKF charged in Extended Overdraft Fees "translates to an effective annualized interest rate between 501% and 2,462%," or over 83 times the maximum legal amount. Id. at 18a. Walker filed this suit as a putative class action representing all BOKF customers who, within the statute of limitations, were charged one or more Extended Overdraft Fees. Id. at 13a.

BOKF filed a motion to dismiss under Rule 12(b)(6), arguing that BOKF's Extended Overdraft Fees are not "interest" under the NBA and that Walker therefore failed to state a claim upon which relief can be granted. Id. 23a–32a. In support, BOKF asserted that the interpretation of overdraft fees by the Office of the Comptroller of the Currency ("OCC") in its Interpretive Letter 1082 place both initial and extended overdraft fees, including BOKF's Extended Overdraft Fees, under 12 C.F.R. § 7.4002(a) ’s "deposit account services,"³ not 12 C.F.R. § 7.4001 ’s "interest."⁴ Id. ; Interpretive Letter 1082 at *1.

BOKF also noted that although no Tenth Circuit decision directly resolves this issue, the overwhelming majority of federal courts who have addressed the issue have determined that both initial and extended overdraft fees are not interest under the NBA. ROA, at 23a–32a.

In response, Walker urged the district court to adopt the reasoning outlined in Farrell v. Bank of America, N.A. , 224 F. Supp. 3d 1016 (S.D. Cal. 2016), which is the only court to conclude that extended overdraft fees are interest under the NBA. Id. at 82a–92a. First, Walker argued that initial overdraft fees and extended overdraft fees are entirely separate and triggered at different times and for different reasons. Id. Although Walker concedes that BOKF's Initial Overdraft Fee qualifies as a "deposit account service" under § 7.4002(a), BOKF's Extended Overdraft Fee "is an interest charge levied by BOKF for the continued extension of credit made in covering a customer's overdraft" and therefore cannot be considered connected to the same banking services that BOKF provides to its depositors. Id. at 7a, 85a–86a. In support, Walker pointed to guidance issued by OCC and three other agencies on bank overdraft programs ("2005 Joint Guidance").⁵ 70 Fed. Reg. 9127 (Feb. 24, 2005). The 2005 Joint Guidance observed that overdraft programs created risks for banks because "[w]hen overdrafts are paid, credit is extended." Id. at 9129. The 2005 Joint Guidance, however, did not address the application of the NBA to overdraft fee programs and appears more focused on alerting banks to the exposure of increased risk created by the payment of overdrafts. Nonetheless, Walker argued that the 2005 Joint Guidance illustrated that when a bank covers an overdrawn account, it is "loaning" money to the account depositor. Id. at 82a–92a. As such, BOKF's Extended Overdraft Fees are really "interest" on the bank's "loan," which falls under § 7.4001. Id.

The district court granted BOKF's motion to dismiss and concluded as a matter of law that BOKF's Extended Overdraft Fees are not "interest" under the NBA. Id. at 111a. The district court acknowledged that the NBA did not define the term "interest." It also noted that the Supreme Court has previously held that the NBA's use of the term "interest" is ambiguous, and OCC's interpretation of the ambiguous term should be afforded due deference. Id. at 115a (citing Smiley v. Citibank (S.D.), N.A. , 517 U.S. 735, 739, 116 S.Ct. 1730, 135 L.Ed.2d 25 (1996) ). The district court agreed with BOKF that OCC had clarified the relationship between the NBA and extended overdraft fees in Interpretive Letter 1082. Id. (citing Auer v. Robbins , 519 U.S. 452, 117 S.Ct. 905, 137 L.Ed.2d 79 (1997), and Skidmore v. Swift & Co. , 323 U.S. 134, 65 S.Ct. 161, 89 L.Ed. 124 (1944) ). It therefore deferred to OCC's determination in Interpretive Letter 1082 that overdraft fees are "non-interest charges and fees" for "deposit account services" governed by § 7.4002, not "interest charges" governed by § 7.4001. Id. at 115a–21a. The district court concluded that Walker's attempt to characterize BOKF's Extended Overdraft Fees as "interest" on its "extension of credit" when covering overdrafts, or to draw a distinction between initial and extended overdraft fees, failed. Id.

In reaching this decision, the district court made the following additional observations about extended overdraft fees: (1) courts have consistently held that both initial and extended overdraft fees are contingent upon a customer overdrawing their account; (2) § 7.4002(b) states that a charge does not need to be attached to a service to be considered non-interest; (3) extended overdraft fees are included in the terms of a bank's deposit account agreement with its customers; (4) extended overdraft fees lack the hallmarks of credit extensions because the overdraft does not involve a customer reaching out to the bank to borrow money; (5) extended overdraft fees do not operate like "interest" because the amount is a flat fee applied to any overdrawn balance, not a percentage applied to a specific principal; and (6) Walker's reliance on the 2005 Joint Guidance was inapplicable to...