Tenth Circuit Agrees Extended Overdraft Fees Are Not Interest

The U.S. Court of Appeals for the Tenth Circuit recently published an opinion holding that extended overdraft fees—i.e., additional fees charged by a bank to a depositor for the depositor’s account staying in overdraft status after an initial charge for overdrawing an account—are “fees for deposit account services,” rather than interest charges, which would be subject to the usury limits of the National Bank Act of 1864. In doing so, the Tenth Circuit joined the First and Fifth Circuits which had previously come to the same conclusion.

The Tenth Circuit reached its conclusion based in large part on deference to the OCC’s Interpretative Letter 1082, which allowed a bank to charge extended overdraft fees as fees for account services. The bank requesting the interpretation in Interpretative Letter 1082 charged $5 daily extended overdraft fees on the fourth through the eleventh day the account was continuously overdrawn; and the bank in the Tenth Circuit case charged a $6.50 daily extended overdraft fee on each business day after the account was continuously overdrawn for five business days, without any limit. The Tenth Circuit held that this practice was indistinguishable from the practice described in Interpretative Letter 1082 and deferred to the OCC’s interpretation of its own regulations under the National Bank Act.

This holding is important for depository institutions because if extended overdraft fees were deemed to be interest charges, they would be limited by the National Bank Act to the statutory usury rate established by the state in which the institution is chartered and could also give rise to a private right of action by affected depositors.