Court Opinion

ID: 4381038
Source: CourtListenerOpinion
Date Created: 2019-03-26 19:00:11.811754+00
Date Added: 2024-06-11T14:49:59.745707
License: Public Domain

United States Court of Appeals
                     For the First Circuit

No. 18-1443

    BARBARA FAWCETT, individually and on behalf of all others
                       similarly situated,

                      Plaintiff, Appellant,

                               v.

                      CITIZENS BANK, N.A.,

                      Defendant, Appellee.

          APPEAL FROM THE UNITED STATES DISTRICT COURT
                FOR THE DISTRICT OF MASSACHUSETTS

         [Hon. Timothy S. Hillman, U.S. District Judge]

                             Before

                      Howard, Chief Judge,
                Lynch and Lipez, Circuit Judges.

     Edward F. Haber, with whom Patrick J. Vallely and Shapiro
Haber & Urmy LLP were on brief, for appellant.
     David J. Zimmer, with whom Brenda R. Sharton and Goodwin
Procter LLP were on brief, for appellee.

                         March 26, 2019
            LYNCH,   Circuit     Judge.        This   putative    class    action

alleges   that    Citizens    Bank's    "Sustained       Overdraft      Fees"   for

overdrawn   checking   accounts       are    usurious    interest    charges     in

violation of Section 85 of the National Bank Act, 12 U.S.C. § 1 et

seq.   The district court concluded that Citizens Bank's fees were

not "interest" under the Act and so dismissed the action for

failure to state a claim.        Order, Fawcett v. Citizens Bank, N.A.,

No. 4:17-cv-11043-TSH (D. Mass. Apr. 19, 2018), ECF No. 36.

            On the facts of this case, we hold that Citizens Bank's

"Sustained Overdraft Fees" are not "interest" under the National

Bank Act.    This result follows from regulatory text and history

and from persuasive, directly applicable reasoning presented in

the Office of the Comptroller of the Currency's Interpretive Letter

1082, issued in 2007.        We affirm.

                                       I.

                                       A.

            The   National     Bank    Act    (NBA)     governs   the    business

activities of national banks like Citizens Bank.                  The Office of

the Comptroller of the Currency (OCC), the agency Congress has

charged   with    implementing    the       NBA,   oversees   national     banks'

operations and interactions with customers.               Watters v. Wachovia

Bank, N.A., 550 U.S. 1, 6 (2007).

            The NBA allows a national bank to charge "interest at

the rate allowed by the laws of the State . . . where the bank is

                                      - 2 -
located."     12 U.S.C. § 85.   The NBA does not define the term

"interest."    The Supreme Court has held that the term "interest"

is ambiguous and that OCC is due deference in interpreting it.

Smiley v. Citibank (S.D.), N.A., 517 U.S. 735, 739 (1996) (citing

Chevron U.S.A. Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837,

842-45 (1984)).

            OCC has, in regulations promulgated after notice and

comment, defined the term "interest" as used in Section 85 of the

NBA:

                 The term 'interest' as used in 12 U.S.C.
            [§] 85 includes any payment compensating a
            creditor or prospective creditor for an
            extension of credit, making available of a
            line of credit, or any default or breach by a
            borrower of a condition upon which credit was
            extended.
                 It includes, among other things, the
            following fees connected with credit extension
            or availability:
                     numerical periodic rates,
                     late fees,
                     creditor-imposed    not   sufficient
                      funds (NSF) fees charged when a
                      borrower tenders payment on a debt
                      with a check drawn on insufficient
                      funds,
                     overlimit fees,
                     annual fees,
                     cash advance fees, and
                     membership fees.
                 It does not ordinarily include appraisal
            fees, premiums and commissions attributable to
            insurance guaranteeing repayment of any
            extension of credit, finders' fees, fees for
            document preparation or notarization, or fees
            incurred to obtain credit reports.

                                - 3 -
12 C.F.R. § 7.4001(a) (bullet points and line breaks added).1    When

a charge is "interest," its rate cannot exceed "the maximum rate

permitted to any state-chartered or licensed lending institution

by the law of [the state where the bank is located]."            Id.

§ 7.4001(b). This maximum interest rate is called a "usury limit."

See, e.g., M. Nahas & Co., Inc. v. First Nat. Bank of Hot Springs,

930 F.2d 608, 610 (8th Cir. 1991) (using the term).

           If a bank's charge is not "interest," however, then the

guidelines for "deposit account service charges" apply.   12 C.F.R.

§ 7.4002. Deposit account service charges are not subject to usury

limits.   See id.   A bank may, at its discretion, impose a deposit

account service charge and set its amount, so long as the bank

acts within the bounds of "sound banking judgment and safe and

sound banking principles."   Id. § 7.4002(b)(2).

           Because the parties draw different conclusions from

regulatory history, we recount that history here.     In 2001, OCC

revisited its definition of "interest."    OCC said that fees like

"overdraft and returned check charges" imposed by a bank on its

checking account customers were "deposit account services" charges

and not "interest."   66 Fed. Reg. 8178, 8180 (Jan. 30, 2001).    OCC

then noted a gap in its regulations:     If a bank's overdraft fee

exceeded its returned check fee, then the difference between those

     1    These regulations were in effect throughout the alleged
class period here.

                                - 4 -
two charges -- its excess overdraft charge -- "could be viewed as

interest within the meaning of [the NBA]."      Id.   OCC stated that

its regulation "did not expressly resolve this issue" and invited

comment.   Id.

           OCC published its final rule, set forth above, after the

comment period closed.     OCC noted that it had "received numerous

comments" on whether "any portion of the fee imposed by a national

bank when it pays an overdraft" should constitute "interest" under

the NBA.   66 Fed. Reg. 34784, 34787 (July 2, 2001).        Given the

"complex and fact-specific concerns" that including "any portion

of a charge imposed in connection with paying an overdraft" in the

definition of "interest" would raise, OCC decided to "not amend[]

[12 C.F.R.] § 7.4001(a) to address this issue."       Id.

           OCC next addressed excess overdraft fees in Interpretive

Letter 1082 on May 17, 2007.        An unnamed bank described its

overdraft fee structure to OCC and asked the agency whether under

the NBA and OCC's regulations it could, "(1) in its discretion,

honor items for which there are insufficient funds in depositors'

accounts and recover the resulting overdraft amounts as part of

the   Bank's     routine   maintenance   of   these    accounts;   and

(2) establish, charge and recover overdraft fees from depositors'

accounts for doing so." Office of the Comptroller of the Currency,

Interpretive Letter No. 1082, 2007 WL 5393636, at *1 (May 17,

2007). The bank seeking guidance "charge[d] a Continuous Overdraft

                                - 5 -
Charge of $5 per business day from the fourth through eleventh

calendar day that an account is overdrawn."                      Id. at *1 n.3

(emphasis    added).      OCC   noted   this      and   said    that   the   bank's

practices posed no issues under the NBA or the OCC's regulations

interpreting the NBA.        Id. at *1.      OCC explained that "[c]reating

and recovering overdrafts have long been recognized as elements of

the discretionary deposit account services that banks provide."

Id. at *2.

                                        B.

             Citizens Bank is a national bank that offers checking

account services to its customers.            When a Citizens Bank customer

overdraws her account, Citizens Bank has two options:                        It can

either   (1) cover     the   overdraft       or   (2) decline     to   cover    the

overdraft and return the check.

             Citizens Bank charges a fee in both instances.                      If

Citizens Bank returns a check, it charges a $35 "Returned Item

Fee."    If Citizens Bank honors the check, it charges a $35

"Overdraft Fee."       If the account remains overdrawn after Citizens

Bank has honored the check and charged the initial overdraft fee,

Citizens Bank then charges a "Sustained Overdraft Fee." It charges

that "Sustained Overdraft Fee" three times:                    $30 four business

days after the overdraft, another $30 after seven business days,

and a final $30 after ten business days.                The complaint does not

                                    - 6 -
allege that Citizens Bank charges any "Sustained Overdraft Fees"

after the ten-business-day mark.

            On the facts presented here, then, Citizens Bank may

charge a customer up to $90 more to honor her overdraft than it

charges her to not cover it.     This case considers whether that $90

difference --    Citizens   Bank's    excess   overdraft     charge --   is

"interest" under the NBA.

                                     C.

            Fawcett filed her complaint in Massachusetts federal

district court on June 7, 2017.            The complaint alleges that

Citizens Bank's "Sustained Overdraft Fees" violate the NBA because

they constitute "interest" at a rate above that allowed by Rhode

Island, the state in which Citizens Bank is located.2               See 12

U.S.C. § 85; 12 C.F.R. § 7.4001(b).            The complaint does not

challenge   either   Citizens   Bank's    "Returned   Item   Fee"   or   its

"Overdraft Fee."

            Citizens Bank moved to dismiss.3 The district court held

a hearing on that motion and then dismissed Fawcett's complaint

     2     The complaint alleges that during the class period the
maximum interest rate allowed in Rhode Island was twenty-one
percent.    For purposes of the motion to dismiss, there is no
dispute that Citizens Bank's "Sustained Overdraft Fees" exceeded
that rate.
     3    Citizens Bank also moved to stay the case and compel
arbitration.   The district court denied that motion. Citizens
Bank has not appealed that denial.

                                 - 7 -
with a short text order.        That order says that the court would

"follow the overwhelming majority of jurisdictions which have

ruled that sustained overdraft fees are not considered interest

under   the    NBA,"   apparently   referring   to   cases   cited   in   the

briefing.

              Fawcett timely appealed.

                                     II.

              We review de novo the decision to grant a Rule 12(b)(6)

motion to dismiss.        Lemelson v. Bloomberg L.P., 903 F.3d 19, 23

(1st Cir. 2018).       In doing so, "we accept as true all well-pleaded

facts alleged in the complaint and draw all reasonable inferences

therefrom in the pleader's favor."          Id. (quoting Rodríguez-Reyes

v. Molina-Rodríguez, 711 F.3d 49, 52-53 (1st Cir. 2013)).

              Throughout, we are mindful that OCC, as the primary

regulator of national banks chartered under the NBA, is entitled

to "great weight" in interpreting the banking laws.              Clarke v.

Sec. Indus. Ass'n, 479 U.S. 388, 403–04 (1987) (quoting Inv. Co.

Inst. v. Camp, 401 U.S. 617, 626–27 (1971)); accord Smiley, 517

U.S. at 739 (deferring to OCC under Chevron); NationsBank of N.C.,

N.A. v. Variable Annuity Life Ins. Co., 513 U.S. 251, 257 (1995)

(same).

                                     A.

              As the law currently stands, Interpretive Letter 1082

resolves this case.       The bank that requested OCC's guidance there

                                    - 8 -
charged a flat excess overdraft charge to customers whose accounts

remained overdrawn after the initial overdraft fee was imposed.

2007 WL 5393636, at *1 n.3.   OCC said that practice was consistent

with the NBA and OCC's regulations interpreting the NBA.       Id. at

*1.   OCC thus concluded that the precise practice here is lawful.4

           OCC's   interpretation   of   its    own   regulations   is

controlling under Auer v. Robbins, 519 U.S. 452 (1997).5        Under

Auer, an interpretation is "controlling unless 'plainly erroneous

or inconsistent with the regulation.'"         Auer, 519 U.S. at 461

(quoting Robertson v. Methow Valley Citizens Council, 490 U.S.

332, 359 (1989)).6

      4   The dissent argues that Interpretive Letter 1082 does
not resolve this issue.     But the bank seeking guidance there
"describe[d] in some detail [its] process for honoring and clearing
overdraft items and for establishing, charging, and recovering
overdraft fees." 2007 WL 5393636, at *1. That process included
"charg[ing] a Continuous Overdraft Charge of $5 per business day
from the fourth through eleventh calendar day that an account is
overdrawn." Id. at *1 n.3 (emphasis added). Fawcett specifically
admitted this at oral argument. And OCC noted this practice and
confirmed that the bank's practices were lawful. This cannot be
described as "silence" on the issue of whether flat excess
overdraft charges like that bank's comport with the NBA.
      5   At least one circuit has applied Auer deference to OCC's
interpretive letters. See Wells Fargo Bank of Tex. NA v. James,
321 F.3d 488, 494-95 (5th Cir. 2003) (deferring under Auer to a
position OCC advanced in an interpretive letter). And the Supreme
Court has granted Auer deference to interpretations advanced in
even less formal documents, such as an internal advisory
memorandum, e.g., Long Island Care at Home, Ltd. v. Coke, 551 U.S.
158, 171 (2007), and an amicus brief, e.g., Chase Bank USA, N.A.
v. McCoy, 562 U.S. 195, 209 (2011).
      6   We recognize that the Supreme Court granted certiorari
in Kisor v. Wilkie, 139 S. Ct. 657 (2018) (No. 18-15), which asks

                               - 9 -
            Fawcett has made no argument that OCC plainly erred in

interpreting its own regulation or that OCC's interpretation is

inconsistent with the text of its regulation.                   Fawcett does,

however, advance three arguments for why OCC's interpretation in

Interpretive Letter 1082 otherwise does not merit deference.                 We

reject each argument in turn.

            First, Fawcett argues that Auer deference does not apply

because     Interpretive    Letter    1082     analyzes    OCC's   regulation

governing    non-interest    charges,     12   C.F.R.     § 7.4002,   not   its

"interest" regulation, 12 C.F.R. § 7.4001.          This is a non-starter.

The bank asked for OCC's guidance "under the National Bank Act and

[OCC] regulations."        2007 WL 5393636, at *1.          And under OCC's

regulations, a charge is either "interest" or it is a "non-interest

charge[]," which includes "deposit account service charges."                 12

C.F.R. § 7.4002(a); see id. § 7.4002(c) ("Charges and fees that

are 'interest' within the meaning of [the NBA] are governed by

§ 7.4001 and not by this section.").            In classifying the bank's

excess overdraft charges as "deposit account service charges," OCC

necessarily    rejected    the   conclusion     that    those   charges     were

"interest."

            Second, Fawcett argues that OCC has advanced internally

inconsistent interpretations of "interest."             She points to OCC's

whether Auer should be overruled.     At present, however, Auer
remains binding precedent and we apply it as such.

                                     - 10 -
2001 statement that, in some factual scenarios, "[a] bank that

pays a check drawn against insufficient funds may be viewed as

having extended credit to the accountholder."                     66 Fed. Reg. at

8180. This does not at all contradict OCC's later conclusion that,

in cases like this one, a flat excess overdraft charge does not

constitute "interest."

              And third, Fawcett appears to argue we should not defer

to OCC's definition of "interest" in 12 C.F.R. § 7.4001 because

that definition simply paraphrases language from the NBA.                   Smiley,

in   which    the    Supreme     Court    deferred     to   OCC's    definition    of

"interest" in 12 C.F.R. § 7.4001, forecloses this argument.                       See

517 U.S. at 739.

              Because OCC's interpretation in Interpretive Letter 1082

is "consistent with the regulatory text" and not plainly erroneous,

Chase Bank USA, N.A. v. McCoy, 562 U.S. 195, 208 (2011), and

because there is no alternative reason to withhold deference, we

give it deference.

                                           B.

              Even absent Auer deference, OCC's interpretation is due

"a measure of deference proportional to the 'thoroughness evident

in   its     consideration,       the     validity    of    its     reasoning,    its

consistency with earlier and later pronouncements, and all those

factors      which   give   it    power    to     persuade.'"       Christopher    v.

SmithKline Beecham Corp., 567 U.S. 142, 159 (2012) (quoting United

                                         - 11 -
States v. Mead Corp., 533 U.S. 218, 228 (2001)).   The most salient

of those factors is the validity of OCC's reasoning.     See Doe v.

Leavitt, 552 F.3d 75, 82 (1st Cir. 2009).

           OCC found that the overdraft fees described to it,

including the flat dollar amount excess overdraft fees, were

deposit account service charges.    Those fees compensate the bank

for services "directly connected with the maintenance of a deposit

account." 2007 WL 5393636, at *4. And those are services "that --

pursuant   to    [the   bank's]    deposit   agreement   with    the

accountholder -- the accountholder has agreed to pay for."       Id.

OCC's conclusion, on the facts here, is persuasive for at least

four reasons:   Flat excess overdraft fees (1) arise from the terms

of a bank's deposit account agreement with its customers, (2) are

connected to deposit account services, (3) lack the hallmarks of

an extension of credit, and (4) do not operate like conventional

interest charges.

           First, flat excess overdraft fees arise from the terms

of a bank's deposit account agreement with its customers.       Even

before Interpretive Letter 1082, the Eleventh Circuit considered

this relevant to whether a charge should be classified as a deposit

account service charge. See Video Trax, Inc. v. NationsBank, N.A.,

33 F. Supp. 2d 1041, 1050 (S.D. Fla. 1998), aff'd, 205 F.3d 1358

(11th Cir. 2000).

                               - 12 -
            Second, flat excess overdraft fees compensate a bank for

its deposit account services.    For instance, such excess overdraft

fees may compensate a bank for the service of continuing to hold

open an overdrawn checking account.       See 12 C.F.R. § 7.4002(a)

(stating that a bank "may charge its customers non-interest charges

and fees").    And they may cover the costs incurred in providing

this service, such as costs associated with additional monitoring

to protect the bank against losses from a deposit accountholder

who fails to remedy her overdrawn account.    See 70 Fed. Reg. 9127,

9129 (Feb. 24, 2005) (noting that banks "should monitor [overdrawn]

accounts on an ongoing basis"); cf. 12 C.F.R. § 7.4002(b)(2)(iv)

(stating that a bank must consider, among other things, its "safety

and soundness" when setting a non-interest charge).     Flat excess

overdraft fees may also advance a bank's compliance with "safe and

sound banking principles," id. § 7.4002(b)(2), by, for example,

deterring     customers   from    misusing   those   services,   id.

§ 7.4002(b)(2)(ii).

            Fawcett argues that a flat excess overdraft fee like

Citizens Bank's "Sustained Overdraft Fee" is not associated with

the provision of any deposit account service, but "is more of a

charge in consideration for the time value of money," citing to

Farrell v. Bank of Am., N.A., 224 F. Supp. 3d 1016, 1020-21 (S.D.

Cal. 2016).    The preceding discussion amply counters this claim.

                                 - 13 -
             Third, flat excess overdraft fees lack the hallmarks of

an extension of credit.         Overdraft transactions do not involve a

customer reaching out to the bank to borrow money.           And there is

no underwriting here -- Citizens Bank, under its deposit account

agreement, honors the overdraft on the same terms for all its

customers.     These features separate flat excess overdraft fees

like Citizens Bank's "Sustained Overdraft Fees" from interest

charges like "late fees" that are "connected with credit extension"

and "[p]ayment[s] compensating a creditor . . . for an extension

of credit."    12 C.F.R. § 7.4001(a).

             And fourth, flat excess overdraft fees do not operate

like conventional "interest" charges.            A conventional interest

charge involves the application of an established rate to the

principal balance.      But the "Sustained Overdraft Fees" here are

each $30 regardless of the amount of the negative balance of the

overdrawn account.

             Fawcett   argues    that   some   "interest"   charges   could

nonetheless have a flat amount as opposed to being a rate attached

to an amount owed.      She cites Smiley, in which the Supreme Court

noted that there was "no indication" that the NBA's definition of

interest "was limited to charges expressed as a function of time

or of amount owing."       517 U.S. at 745.       But the fact that some

flat fees may be "interest" is no proof that it is invalid for OCC

to classify the flat fees here as something other than "interest."

                                   - 14 -
And in Smiley, the Court considered flat late fees applied to

holders of credit card accounts, not deposit accounts.                See id.

           We   find    OCC's    reasoning      persuasive     and   hold     that

Citizens Bank's "Sustained Overdraft Fees" are "deposit account

service charges," not interest.

                                       C.

           Fawcett     makes    an   argument    that,   in   her    view,    "the

economic reality of banks paying overdrafts" is that the bank is

in fact extending credit to its checking account customers.                     In

support of this proposition, she points to language in the "Joint

Guidance on Overdraft Protection Programs" that "[w]hen overdrafts

are paid, credit is extended."          70 Fed. Reg. at 9129.         The Joint

Guidance was issued in 2005 by four federal bank regulators: the

OCC, the Board of Governors of the Federal Reserve, the Federal

Deposit   Insurance    Corporation,     and     the   National   Credit      Union

Administration.   Of those four agencies, only OCC is charged with

the responsibility of interpreting and administering the NBA.

           The statement in the Joint Guidance is inapplicable here

for several reasons, of which we give a few.                  First, the Joint

Guidance was not meant to provide OCC's interpretation of the NBA,

nor does it purport to do that.         The Joint Guidance's purpose was

to "assist" a variety of "insured depository institutions in the

responsible disclosure and administration of overdraft protection

services." 70 Fed. Reg. at 9127. Second, the Joint Guidance (from

                                     - 15 -
2005) predates Interpretive Letter 1082 (from 2007), and so is not

OCC's last word on overdraft programs or on flat excess overdraft

fees.   And third, the statement that "[w]hen overdrafts are paid,

credit is extended" appears in a section of the Joint Guidance

entitled "Safety and Soundness Considerations." Id. at 9129. That

section warns that overdraft protection programs "may expose an

institution to more credit risk (e.g., higher delinquencies and

losses)."    Id.   In context, then, the statement is meant only to

acknowledge that if a bank honors an overdraft and the checking

account customer does not replenish her account, the bank will

have to charge off the negative balance, which may pose a "credit

risk" to the institution.    Id.

                                   D.

            Fawcett's argument, adopted by the dissent, that the

district court erred in not allowing discovery fails.   The dissent

says that Fawcett should be allowed to probe "the rationales and

factual basis for Citizens Bank's 'Sustained Overdraft Fees.'"

But Congress entrusted OCC, not inexpert federal judges, with

interpreting "the meaning of the banking laws."    Smiley, 517 U.S.

at 739.     The dissent's case-by-case approach would upend this

order, at a cost to the clarity needed by the financial industry.

            OCC's guidance forecloses this approach.    This appeal

concerns a pure question of law and does not turn on discovery.

                               - 16 -
                              *       *      *

          We   hold   only   that    flat    excess   overdraft   fees   like

Citizens Bank's "Sustained Overdraft Fees" are not "interest"

under the NBA.

          Citizens Bank urges a broad ruling that "no fee connected

to the overdraft is interest under § 7.4001."             The bank argues

that regulatory history establishes this proposition.             We decline

to take such a sweeping approach, given that the considerations

surrounding overdraft fees are, in OCC's words, "complex and fact-

specific," and because we need not adopt such a position to resolve

this case.     When "it is not necessary to decide more, it is

necessary not to decide more."       PDK Labs. Inc. v. U.S. D.E.A., 362

F.3d 786, 799 (D.C. Cir. 2004) (Roberts, J., concurring in part

and concurring in the judgment).

                                     III.

          We affirm.

                      -Dissenting Opinion Follows-

                                    - 17 -
             LIPEZ,      Circuit    Judge,     dissenting.         Although    I

acknowledge that this is a close case, I cannot agree with my

colleagues that Barbara Fawcett's complaint should be dismissed as

a matter of law for failure to state a claim.                Fawcett insists

that, at a minimum, she is entitled to seek information about the

rationales    and     factual   basis   for    Citizens   Bank's    "Sustained

Overdraft Fees."       I agree.     Accordingly, I respectfully dissent.

             Fawcett      wisely     does     not   challenge      the     OCC's

well-established view that, under 12 C.F.R. § 7.4001(a), the fee

imposed when a checking account is first overdrawn is a service

charge rather than interest at least where, as here, the overdraft

fee does not exceed the returned check fee.7 Rather, she challenges

the bank's sustained fees, which are charged over the course of

ten   days    if    an    account    remains    overdrawn.         Those   fees

unquestionably relate to the accountholder's continuing "use" of

the bank's money over time -- a service for which banks ordinarily

charge interest.       Fawcett thus argues that the OCC's treatment of

initial overdraft fees does not support dismissal of her complaint

challenging the sustained fees assessed against her.

      7Citizens Bank's initial "Overdraft Fee" and its "Returned
Item Fee" is the same -- $35. When the charge stemming from an
overdraft does not differ depending on whether the bank advances
funds to the accountholder or refuses to do so, the fee is plainly
for an account service (handling the overdraft) and not for the de
facto "credit" given to the customer whose debit is paid despite
her inadequate funds.

                                     - 18 -
            Fawcett's reasoning draws support from both the OCC's

and Citizens Bank's depiction of typical overdraft practices.                   The

OCC has described a bank's payment of checks drawn on insufficient

funds as largely a bookkeeping accommodation for its customers:

"Where a customer creates debits on his or her account for amounts

in excess of the funds available in that account, a bank may elect

to honor the overdraft and then recover the overdraft amount as

part of its posting of items and clearing of the depositor's

account."    OCC Interpretive Letter No. 1082, 2007 WL 5393636, at

*2 (May 17, 2007).       At oral argument before our court, Citizens

Bank   similarly     explained    that,      in   the   ordinary     case,    banks

providing    overdraft    coverage      at   their      discretion    are     merely

resequencing accountholder deposits and withdrawals that will soon

balance     out.       The      resequencing      characterization          becomes

increasingly inapt, however, when an accountholder's deposits do

not quickly cure the overdraft.         That is, as the days pass without

offsetting deposits, the overdraft coverage looks more and more

like a short-term loan.         Borrowers typically pay for loans in the

form of interest; hence, Fawcett's theory that the sustained

overdraft charges for delayed payment are in effect interest has

traction.

            My     colleagues    hold   that      Interpretive       Letter     1082

conclusively forecloses characterizing Citizens Bank's Sustained

Overdraft Fees as interest, pointing to the Letter's footnote 3 as

                                    - 19 -
proof   that   the   OCC   has   deemed    "the   precise   practice   here

. . . lawful."    Maj. Op. at II.A.       In footnote 3, the OCC reports

that the bank whose inquiry prompted the Letter imposes initial

overdraft fees of $23 or $34, depending on the frequency of

overdrafts, and "also may charge a Continuous Overdraft Charge of

$5 per business day from the fourth through eleventh calendar day

that an account is overdrawn."             2007 WL 5393636, at *1 n.3

(emphasis added).     Nowhere else in the Letter, however, does the

OCC make specific reference to the continuous charges, and the

Letter contains no analysis of whether those fees constitute

interest.

            To understand the significance of the footnote, it is

important to recognize what the OCC was specifically addressing in

the Letter.    The Letter responded to questions posed by an unnamed

bank that had been sued by plaintiffs who claimed the bank "may

not recover overdraft amounts and fees owed on an account from

public benefits payments deposited in that same account by a

California depositor." Id. at *2. The bank asked whether it could

"honor items for which there are insufficient funds in depositors'

accounts," recover the overdraft amounts as part of its "routine

maintenance of these accounts," and deduct "overdraft fees from

depositors' accounts for doing so."          Id. at *1.     The bank also

sought confirmation that its overdraft practices did not trigger

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OCC regulations involving the application of "state law to a

national bank's deposit-taking activities."   Id.

            I cannot conclude that the OCC, in responding to these

questions and making only a passing descriptive reference to the

bank's continuous overdraft charges, decided sub silentio the

important issue of whether such fees constitute interest. To reach

that conclusion, we must disregard the OCC's own observations in

2001, when it revisited the definition of "interest" for purposes

of 12 C.F.R. § 7.001(a).

            At that time, the OCC recognized that "[a] bank that

pays a check drawn against insufficient funds may be viewed as

having extended credit to the accountholder."   66 Fed. Reg. 8178-

02, 8180, 2001 WL 68132 (Jan. 30, 2001).      In other words, even

from the outset, a bank's payment of a "not sufficient funds"

("NSF") check reasonably could have been characterized as a loan

to its accountholder, with the related fees properly classified as

interest.   The agency, however, adhered to its prior view that the

initial overdraft transaction is not an extension of credit, and,

accordingly, the fee imposed should not be treated categorically

as interest under § 7001(a).    Importantly, however, the OCC did

not reject classifying some "portion of a charge imposed in

connection with paying an overdraft" as interest.     66 Fed. Reg.

34784-01, 2001 WL 731640, at *34787 (July 2, 2001).   In fact, the

OCC declined to decide whether the portion of such a fee that

                               - 21 -
exceeds the amount charged when the bank refuses payment may

constitute interest, noting that resolving this question involves

"complex and fact-specific concerns."         Id.

            Interpretive Letter 1082, which was issued six years

later, simply does not resolve the issue.              The OCC was not

specifically asked to consider, and the Letter does not purport to

address, whether any charges exceeding a returned check fee --

which   would   include   the   "sustained"    fees   at   issue   here   --

constitute interest.      To be sure, it is possible that the OCC's

cursory reference to the continuous charges means that it saw no

obvious or material distinction between the initial and subsequent

fees.     Silence, however, is not guidance, and we would thus need

to infer a ruling on a debated issue from between the lines of the

Letter.    I do not see how we can defer to an interpretation that

the OCC never clearly made on an issue that it previously described

as complex and fact-specific.

            Nor do I believe the other reasons articulated by the

majority permit us to conclude that Fawcett has failed to plausibly

plead that Citizens Bank's sustained overdraft fees may be interest

charges.    It is irrelevant that the "Sustained Overdraft Fees" are

limited in number and duration -- specifically, three charges over

ten days -- and therefore do not resemble classic interest charges.

The Supreme Court has expressly rejected the notion that charges

that "do not vary based on the payment owed or the time period of

                                 - 22 -
delay" cannot constitute interest.              Smiley v. Citibank (S.D.),

N.A., 517 U.S. 735, 745 (1996) (internal quotation marks omitted).

In addition, although the sustained fees may reflect payments for

services   related   to   monitoring      and   maintaining     the   overdrawn

account, see Maj. Op. at II.B, the majority's speculation about

such   services   does    not   justify    discrediting    the    alternative

possibility that the fees are instead designed to deter late

payment and, as "late fees," constitute interest.               See 12 C.F.R.

§ 7.4001(a) (listing "late fees" as within "[t]he term 'interest'

as used in 12 U.S.C. § 85").

           Likewise, while I agree that it is significant that

Citizens   Bank's    discretionary     decision    to   fund,    or   not,   its

customers' overdrafts lacks the ordinary hallmark of a lender-

debtor relationship, see Maj. Op. at II.B, the bank's unilateral

choice to honor or reject an NSF check does not foreclose a

different relationship once a customer has failed to repay the

"loan" via the intended short-term resequencing of credits and

debits.    Indeed, an accountholder's failure to promptly cure the

overdraft inevitably puts the bank and its customer on different

footing and allows for the possibility that the ongoing overdraft

charges could constitute interest.

           Although the classification of Citizens Bank's Sustained

Overdraft Fees is a question of law, the answer -- as the OCC

acknowledged in 2001 -- could depend on the facts Fawcett seeks to

                                   - 23 -
obtain through discovery.    Given that the OCC has declined to

answer that classification question, it is properly our role to

determine the nature of the fees here based on all relevant facts.

Simply put, we should not be deciding as a matter of law, based

solely on the complaint, the "complex and fact-specific" issues

concerning Citizens Bank's sustained fees.    2001 WL 731640, at

*34787.

          I therefore respectfully dissent from my colleagues'

decision to affirm the dismissal of Fawcett's complaint.

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