Introduction

The case Sharonda L. Johnson v. BOKF National Association, reported in 15 F.4th 356, addresses the legality of Extended Overdraft Charges imposed by national banks on their customers. Sharonda L. Johnson, along with other similarly situated individuals, initiated a class action lawsuit against BOKF National Association (BOKF), challenging the bank's overdraft fee structure. The central issue revolved around whether these charges constituted "interest" under the National Bank Act of 1864 (NBA) and, consequently, whether they violated usury limits stipulated in the Act.

The parties involved include Johnson as the Plaintiff-Appellant and BOKF as the Defendant-Appellee. The case was heard by the United States Court of Appeals for the Fifth Circuit, with the judgment delivered on September 29, 2021, by Circuit Judge James L. Dennis, joined by Circuit Judges Higginbotham and Ho.

Summary of the Judgment

Johnson alleged that BOKF's Extended Overdraft Charges constituted "interest" under § 85 of the NBA, arguing that these fees were usurious as they exceeded the state-mandated usury limits. The district court dismissed her claims, determining that Extended Overdraft Charges did not qualify as "interest" under the NBA and thus were not subject to usury constraints.

Upon appeal, the Fifth Circuit Court of Appeals affirmed the district court's decision. The court deferred to the Office of the Comptroller of the Currency's (OCC) interpretation, as presented in Interpretive Letter 1082, which classified such overdraft fees as non-interest chargeable deposit account service fees rather than interest. Consequently, these fees were not subject to the usury limits under the NBA.

Analysis

Precedents Cited

The judgment referenced several key cases and regulations that influenced the court's decision:

• Watters v. Wachovia Bank, N.A. (2007): Established that the NBA governs national banks and emphasized deference to OCC interpretations.
• Smiley v. Citibank, N.A. (1996): Highlighted that the term "interest" under the NBA is ambiguous, warranting deference to OCC's definition.
• Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc. (1984): Introduced the Chevron deference principle for agency interpretations.
• Kisor v. Wilkie (2019): Reaffirmed the necessity of deference to agency interpretations when regulations are genuinely ambiguous.
• AUER v. ROBBINS (1997): Established Auer deference, directing courts to defer to an agency's interpretation of its own regulations unless plainly erroneous.
• M. Nahas & Co., Inc. v. First Nat. Bank of Hot Springs (1991) and Fawcett v. Citizens Bank, N.A. (2019): Supported the use of the term "usury limit" in the context of the NBA.

Legal Reasoning

The court's legal reasoning hinged on the interpretation of "interest" under the NBA. The NBA authorizes national banks to charge interest as per state laws, but it does not explicitly define "interest." The Supreme Court in Smiley v. Citibank deemed the term ambiguous. Consequently, under the Chevron framework, courts must defer to the OCC's reasonable interpretation of the ambiguous term.

The OCC, through its regulations, differentiates between interest and non-interest charges. In 2007, Interpretive Letter 1082 clarified that Extended Overdraft Charges are classified as deposit account service charges under 12 C.F.R. § 7.4002(a) rather than interest under § 7.4001(a). The Fifth Circuit found this interpretation to be reasonable and thus accorded it Auer deference.

The court also addressed Johnson's argument regarding the potential classification of overdraft fees as interest but found it unconvincing. The court emphasized that since the OCC explicitly classified these fees as non-interest charges, they do not fall under the NBA's usury limits.

Impact

This judgment reinforces the OCC's authority in interpreting ambiguous terms within the NBA, particularly concerning fee classifications. By affirming that Extended Overdraft Charges are non-interest fees, the decision limits the applicability of usury laws to national banks in the context of overdraft fees. This precedent may influence future litigation related to bank fees, providing banks with a clearer framework for fee structures without the immediate threat of violating usury laws.

Additionally, the affirmation of Auer deference in this context underscores the judiciary's role in respecting agency expertise, potentially leading to greater reliance on agency interpretations in similar cases.

Complex Concepts Simplified

National Bank Act of 1864 (NBA)

The NBA is a federal law that regulates national banks, ensuring uniformity in banking practices across states. It aims to protect national banks from excessive state regulation and fosters a stable national banking system.

Extended Overdraft Charges

These are fees charged by banks when a customer overdraws their checking account and fails to repay the overdraft within a specified grace period. In Johnson's case, BOKF imposed a daily fee of $6.50 after a five-day grace period.

Usury Limits

Usury limits are laws that set the maximum interest rate a lender can charge on a loan. Under § 85 of the NBA, if a bank charges interest exceeding the state-defined usury limit, it can be penalized by being required to pay twice the excess interest to the customer.

Auer Deference

A legal doctrine where courts defer to an administrative agency's interpretation of its own ambiguous regulations unless the interpretation is plainly erroneous or inconsistent with the regulation's intent.

Conclusion

The Fifth Circuit's affirmation in Sharonda L. Johnson v. BOKF National Association solidifies the OCC's interpretation that Extended Overdraft Charges are non-interest fees under the NBA. This decision underscores the importance of agency expertise in interpreting ambiguous statutory terms and limits the scope of usury laws concerning certain bank-imposed fees. Financial institutions can rely on this precedent to structure overdraft and similar fees within the boundaries set by regulatory interpretations, ensuring compliance while managing account services effectively.