DORSEY v. TD BANK, N.A.

Filing 30

OPINION and ORDER in case 6:15-mn-02613-BHH; granting (15) Motion to Dismiss for Failure to State a Claim in case 6:17-cv-01432-BHH. Signed by Honorable Bruce Howe Hendricks on 2/28/18.Associated Cases: 6:15-mn-02613-BHH, 6:17-cv-01432-BHH(alew, )

UNITED STATES DISTRICT COURT
DISTRICT OF SOUTH CAROLINA
GREENVILLE DIVISION

IN RE: TD BANK, N.A. DEBIT CARD ) Civil Action No.: 6:15-MN-2613-BHH
OVERDRAFT FEE LITIGATION
)
)
MDL No. 2613
)
)
This order relates only to:
)
Opinion and Order
)
Dorsey v. TD Bank, N.A.
)
D.N.J. Case No. 1:17-cv-00074
)
D.S.C. Case No. 6:17-cv-01432
)
_________________________________ )
This matter is before the Court on Defendant TD Bank, N.A.’s (“Defendant,” “TD,”
or “the Bank”) Motion to Dismiss Plaintiff Shaina Dorsey’s (“Plaintiff” or “Dorsey”) Class
Action Complaint (“Dorsey Complaint”) for failure to state a claim, pursuant to Federal
Rule of Civil Procedure 12(b)(6). (Dorsey v. TD Bank, N.A., D.S.C. Case No. 6:17-cv01432, ECF No. 15.)1 For the reasons set forth in this order, Defendant’s motion is
granted and the Dorsey Complaint is dismissed.
BACKGROUND
In this litigation, a collective group of Plaintiffs challenge the manner in which
Defendant, TD Bank, N.A., assessed overdraft fees, posted debit transactions, and
assessed “sustained” overdraft fees. Eight putative class actions were filed against TD
in various federal district courts. On April 2, 2015, the Judicial Panel on Multidistrict
Litigation (“MDL Panel”) centralized these actions and assigned them to this Court. On
April 15, 2015, the MDL Panel transferred an additional putative class action, Robinson
1

The Motion to Dismiss the Dorsey Complaint and related briefing were filed on the D.S.C. Case No.
6:17-cv-01432 docket, but not on the MDL 2613 docket. Accordingly, all further citations to documents on
the case-specific docket are denoted: “Dorsey ECF No. [ ]”.

1

v. TD Bank, N.A., S.D. Fla. C.A. No. 15-cv-60469 (“Robinson I”), to this Court for
inclusion in this litigation, MDL 2613. The MDL Panel also conditionally transferred a
second additional suit, Robinson v. TD Bank, N.A., S.D. Fla. C.A. No. 15-cv-60476
(“Robinson II”), which transfer Plaintiff Robinson opposed at that time. The sole theory
in Robinson II involved a usury claim under the National Bank Act (“NBA”). On August
7, 2015, the MDL Panel resolved Plaintiff Robinson’s motion to vacate the Panel’s
conditional transfer of Robinson II, and transferred the case to this Court for inclusion
within MDL 2613. (ECF No. 55.)
Plaintiffs’ Consolidated Amended Class Action Complaint (“CAC”) was filed on
June 19, 2015. (ECF No. 37.) Though it was filed prior to final transfer of Robinson II
into this litigation, the CAC asserted the same usury claim under the NBA that Robinson
II asserted, on behalf of the same putative nationwide class of TD Bank customers.
(Compare ECF No. 37 ¶ 182, 242-56, with Robinson II, D.S.C. C.A. No. 6:15-cv-3538,
ECF No. 1 ¶ 16, 27-41.) TD Bank filed a Motion to Dismiss Plaintiffs’ CAC for failure to
state a claim on August 3, 2015. (ECF No. 53.) After subsequent briefing and a hearing,
the Court issued an Order on December 10, 2015, granting the Motion to Dismiss in
part. Inter alia, the Court found that TD Bank’s sustained overdraft fee (see Personal
Deposit Account Agreement (“PDAA”), ECF No. 37-1 at 10) is not “interest” within the
meaning of 12 U.S.C. § 85 and 12 C.F.R. § 7.4001. (ECF No. 68 at 80.) As a result, the
Court held that Count VIII of the CAC failed to state a plausible claim for relief from
violation of the NBA’s prohibition on the taking of usurious interest, and dismissed
Count VIII with prejudice. (Id. at 80, 84, 86.)
On January 22, 2016, Plaintiff Robinson filed a Motion to Certify Order in Multiple

2

Claims Case. (ECF No. 72.) Pursuant to Federal Rule of Civil Procedure 54(b), Plaintiff
Robinson asserted that dismissal of her usury claim concluded all judicial labor with
respect to the disposition of Robinson II, and that there was therefore no just reason to
delay her appeal. Alternatively, Plaintiff Robinson sought permission to appeal pursuant
to 28 U.S.C. § 1292(b), averring that immediate appellate review was necessary to
resolve controlling issues of law, and resolution of those issues would significantly
advance the resolution of the case as a whole. (See ECF No. 72.) The Court denied
Plaintiff Robinson’s Motion to Certify on July 18, 2016. (ECF No. 115.)
Plaintiff Robinson filed a Motion for Relief from Order of Dismissal (“Motion to
Reconsider”) on January 18, 2017 (ECF No. 139), citing Farrell v. Bank of Am., N.A.,
224 F. Supp. 3d 1016, 1018 (S.D. Cal. 2016), motion to certify appeal granted, No.
3:16-CV-00492-L-WVG, 2017 WL 1325572 (S.D. Cal. Apr. 11, 2017),2 as new authority
for her theory that TD’s sustained overdraft fees constitute usurious interest under the
NBA. The Court denied Plaintiff Robinson’s Motion to Reconsider on January 20, 2017,
finding the Farrell decision unpersuasive to disturb the Court’s prior conclusions
regarding the nature of the sustained overdraft fees in question. (ECF No. 141.)
On May 31, 2017, the MDL Panel transferred Dorsey v. TD Bank, N.A., D.N.J.
C.A. No. 1:17-cv-00074, into MDL 2613. (ECF No. 157.) The sole count in the Dorsey
Complaint asserts a usury claim materially identical to the usury claim included as
Count VIII of the CAC, and previously dismissed by the Court. (Compare ECF No. 37 ¶¶
160-62, 182, 242-56, with Dorsey ECF No. 1 ¶¶ 12-14, 17, 28-44.) The substance of the
usury claim alleges: (1) that TD assesses a $20 sustained overdraft fee if an account is
2

Pursuant to a joint motion, appellate proceedings in the Farrell case are currently stayed until July 2,
2018, pending resolution of settlement. Farrell v. Bank of America, No. 17-55847 (9th Cir. Jan. 16, 2018)
(granting joint motion to stay appellate proceedings pending settlement).

3

overdrawn and is not brought back into a positive balance within ten business days, and
(2) that this fee is an interest charge on an extension of credit, which interest rate
exceeds the usury limit under 12 U.S.C. §§ 85-86. (See id.) Defendant filed its Motion to
Dismiss on July 11, 2017. (Dorsey ECF No. 15.) Plaintiff Dorsey responded on August
10, 2017, and the Bank replied on August 22, 2017. (Dorsey ECF Nos. 23 & 24.)
Additionally, the Bank filed a notice of supplemental authority on November 27, 2017, to
which Dorsey replied on November 30, 2017. (Dorsey ECF Nos. 27 & 29.) The matter is
ripe for consideration and the Court now makes the following ruling.
STANDARD OF REVIEW
A plaintiff’s complaint should set forth “a short and plain statement . . . showing
that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). “To survive a motion to
dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a
claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)
(quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “A claim has facial
plausibility when the plaintiff pleads factual content that allows the court to draw the
reasonable inference that the defendant is liable for the misconduct alleged.” Id.
(quoting Twombly, 550 U.S. at 556)). In considering a motion to dismiss under Federal
Rule of Civil Procedure 12(b)(6), a court “accepts all well-pled facts as true and
construes these facts in the light most favorable to the plaintiff . . . .” Nemet Chevrolet,
Ltd. v. Consumeraffairs.com, Inc., 591 F.3d 250, 255 (4th Cir. 2009). However, a court
“‘need not accept the [plaintiff’s] legal conclusions drawn from the facts,’ nor need it
‘accept as true unwarranted inferences, unreasonable conclusions, or arguments.’”
Philips v. Pitt Cty. Mem’l Hosp., 572 F.3d 176, 180 (4th Cir. 2009) (quoting Kloth v.

4

Microsoft Corp., 444 F.3d 312, 319 (4th Cir.2006)) (modification in original). A court
should grant a Rule 12(b)(6) motion if, “after accepting all well-pleaded allegations in the
plaintiff’s complaint as true and drawing all reasonable factual inferences from those
facts in the plaintiff’s favor, it appears certain that the plaintiff cannot prove any set of
facts in support of his claim entitling him to relief.” Edwards v. City of Goldsboro, 178
F.3d 231, 244 (4th Cir. 1999).
DISCUSSION
The Dorsey Complaint is subject to dismissal for two reasons. First, the Court’s
Order dismissing the materially identical usury claim in Count VIII of the CAC is the law
of the case. Second, apart from the Court’s prior rulings in the case sub judice, the law
is still clear that sustained overdraft fees are not interest, and that assessing such fees
cannot violate the usury provision of the NBA.
A. The Court’s Prior Ruling on the Usury Claim is the Law of the Case
“The law-of-the-case doctrine provides that in the interest of finality, ‘when a
court decides upon a rule of law, that decision should continue to govern the same
issues in subsequent stages in the same case.’” Carlson v. Boston Sci. Corp., 856 F.3d
320, 325 (4th Cir. 2017) (quoting TFWS, Inc. v. Franchot, 572 F.3d 186, 191 (4th Cir.
2009)). This principle is particularly important in the multidistrict litigation context, “where
there is a need for consistent treatment of consolidated cases.” Pinney v. Nokia, Inc.,
402 F.3d 430, 452-453 (4th Cir. 2005) (holding that the transferee court has the power
to modify or rescind orders in a transferred case which it concludes are incorrect in
order to preserve consistent treatment of consolidated cases); (see also ECF No. 68 at
11 n.1 (finding Pinney instructive in reaching, on the preemption issue, a different result

5

than a prior ruling in one of the transferred cases)).3 “Although the court remains free to
deviate from its prior decisions, as the doctrine is discretionary . . . courts should be
loath to revisit prior decisions in the absence of extraordinary circumstances.” Epstein v.
World Acceptance Corp., 203 F. Supp. 3d 655, 664 (D.S.C. 2016) (quoting Christianson
v. Colt Indus. Operating Corp., 486 U.S. 800, 817 (1988)) (internal modifications and
quotation marks omitted). The Fourth Circuit has ruled that the law of the case doctrine
ought to be followed unless: (1) a subsequent proceeding produces substantially
different evidence, (2) controlling authority has since made a contrary decision of law
applicable to the issue, or (3) the prior decision was clearly erroneous and would work
manifest injustice. See United States v. Aramony, 166 F.3d 655, 661 (4th Cir. 1999).4
The application of this principle invokes important concerns of finality and judicial
economy, and the Fourth Circuit has stated that the third exception is not satisfied if the
prior decision is “just maybe or probably wrong;” rather, it “must strike [the court] as
wrong with the force of a five-week-old, unrefrigerated dead fish.” TFWS 572 F.3d at
194 (internal modifications and quotation marks omitted).
The Court’s December 10, 2015 Order finding, inter alia, that sustained overdraft
fees are not interest, and therefore cannot form the basis of a usury claim is the law of
the case. (See ECF No. 68 at 77-86.) It is undisputed that no different evidence has
been produced, as the usury claims in the CAC and the Dorsey Complaint are

3

The Court is now confronted with a transferred claim that is identical to another claim that it considered
after consolidation. Given this context, the only logical course is to grant the same result for the same
claim.
4
Aramony dealt with the law of the case doctrine as it applies once an appellate court has established the
law of the case; however, its reasoning and itemized bases for deviating from the law of the case are no
less applicable to a trial court reconsidering its own rulings. See Epstein, 203 F. Supp. 3d at 665
(rejecting the argument that interlocutory orders are unconstrained by the law of the case doctrine, and
holding application vel non of the doctrine was of no moment because the court’s previous order was free
from factual and legal error).

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materially indistinguishable and rely on the same evidentiary foundation. No controlling
authority has made a contrary decision on the legal determination at issue. Moreover,
the Court is “of the firm opinion that its previous order [on this issue] is free from any
factual or legal error.” See Epstein, 203 F. Supp. 3d at 665 (emphasis added).
Plaintiff’s argument that the law of the case doctrine only applies in the instance
of an appellate ruling binding a trial court on the same issue in the same case is
unavailing. It ignores the obvious import of the Court reaching consistent results on
identical issues in multidistrict litigation, and asks the Court to turn a blind eye to one of
the fundamental purposes of a consolidated proceeding. See In re: TD Bank, N.A.,
Debit Card Overdraft Fee Litig., 96 F. Supp. 3d 1378, 1379 (U.S. Jud. Pan. Mult. Lit.
2015) (citing the prevention of inconsistent pretrial rulings as a basis for establishing
MDL 2613); (Transfer Order, ECF No. 157 at 1 (transferring Dorsey to MDL 2613 for the
purpose of “prevent[ing] inconsistent pretrial rulings”)). Application of the doctrine by a
trial court to its own interlocutory rulings is discretionary, and the Court exercises its
discretion to reach the only rational conclusion here. Accordingly, the Dorsey Complaint
is subject to dismissal by application of the law of the case.
B. Sustained Overdraft Fees Are Not Interest Under Applicable Law
Plaintiff Dorsey insists that the Court revisit the viability of the usury claim for the
third time in this litigation,5 thereby inviting the Court to create inconsistent outcomes
among the cases consolidated in MDL 2613. Plaintiff has alleged a violation of the
NBA’s prohibition on the taking of usurious interest. Her claim is premised on the
assertion that an extended overdraft balance charge, or what is referred to in the PDAA
as a “SUSTAINED FEE FOR OVERDRAWN ACCOUNTS” (see ECF No. 37-1 at 10)
5

Here, the Court does not count its ruling on Plaintiff Robinson’s Rule 54(b) Motion (ECF No. 115).

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(“sustained overdraft fee”), amounts to an interest charge by TD Bank on the funds it
advances when an account is overdrawn. The sustained overdraft fee is a one-time
$20.00 charge levied on a customer whose checking account remains in an overdrawn
status for ten consecutive business days. (See id.) Plaintiff alleges that “[u]nlike an initial
overdraft fee, the [sustained overdraft fee] is an additional charge to a customer for
which the bank has provided nothing new in the way of services. The charge is based
solely on the alleged indebtedness to the bank remaining unpaid by the customer for a
period of time.” (Dorsey Complaint ¶ 9, ECF No. 1 at 4 (emphasis in original).)
Moreover, Plaintiff avers that “TD Bank renders no additional service to its customers in
exchange for charging this extra fee other than advancing the original money to a
customer’s account in an amount to cover the overdraft,” and “TD Bank uses the fact
that it has loaned funds to its customer as a pretext to justify charging that customer a
secondary service charge that exceeds lawful limits.” (Id. ¶ 12.) Plaintiff further states,
“There is nothing in TD Bank’s written materials disclosing that this additional ‘fee’ is, in
reality, a charge of interest on extended credit.” (Id. ¶ 14.) Finally, Plaintiff extrapolates
an effective annualized interest rate far in excess of the permissible limit by relating the
$20.00 charge, which corresponds to a 10-day period, to the actual negative balance on
the account (e.g., Dorsey’s negative balance peaked at $208.66 during the relevant
period, leading to an effective annualized interest rate putatively more than fifty-one (51)
times the legal limit). (See id. ¶¶ 15, 29-38.) The question of whether Plaintiff’s
complaint states a plausible claim for relief turns entirely upon whether or not the $20.00
sustained overdraft fee is properly characterized as interest.
TD Bank correctly argues that the sustained overdraft fee is not “interest” within

8

the meaning of 12 U.S.C. § 85. The Bank points to Office of the Comptroller of the
Currency (“OCC”) regulations, which differentiate between bank charges of interest,
governed by 12 C.F.R. § 7.4001, and non-interest charges and fees, governed by 12
C.F.R. § 7.4002. The Court finds, yet again, that TD’s sustained overdraft fee is a noninterest charge under § 7.4002.
Section 7.4001(a) dictates that “creditor-imposed not sufficient funds (NSF) fees
charged when a borrower tenders payment on a debt with a check drawn on insufficient
funds” constitute interest. However, the OCC has specifically excluded deposit account
charges, including overdraft fees from this definition. 66 Fed. Reg. 34784-01, 34786-87;
see Cargile v. JP Morgan Chase & Co., 2010 WL 5491200, at *3 (E.D. Mich. Nov. 23,
2010) (noting that OCC regulations “make[] it clear that an NSF fee constitutes ‘interest’
only when a borrower tenders an insufficient funds check to a creditor in payment of a
previous debt” and “use of the term ‘NSF fees’ does not apply to overdraft charges to a
deposit account”) (emphasis in original). TD Bank contends that if a fee is charged on a
deposit account under the terms of the deposit agreement that fee is a “non-interest”
charge levied pursuant to 12 C.F.R. § 7.4002(a). See Video Trax, Inc. v. NationsBank,
N.A., 33 F. Supp. 2d 1041, 1049-1051 (S.D. Fla. 1998) (holding that overdraft fees
“aris[ing] from the terms of the deposit agreements” were non-interest charges under 12
C.F.R. § 7.4002 rather than interest under 12 C.F.R. § 7.4001), aff’d per curiam 205
F.3d 1358 (11th Cir. 2000), cert. denied, 531 U.S. 822 (2000); OCC Interp. Ltr. No.
1082, 2007 WL 5393636, at *2 (stating that overdraft fees are authorized under 12
C.F.R. § 7.4002). The Bank asserts that the critical inquiry is the nature of the account;
if the fees are charged on a deposit account, then they are not “interest” under the NBA.

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Soto v. Bank of Lancaster Cty., 2011 WL 1050213, at *9 (E.D. Pa. Mar. 23, 2011)
(“[T]he distinction between a credit account and a deposit account is dispositive.”).
Plaintiff responds that the sustained overdraft fee is indeed an “interest” charge
because it is distinct from the initial overdraft charge in both its purpose and application.
(Dorsey ECF No. 23 at 12-30.) Whereas the initial overdraft fee is properly categorized
as a service fee intended to deter customers from misusing bank services and to
compensate the Bank for the increased work entailed in processing an overdraft item,
the sustained overdraft fee, argues Plaintiff, is an amount paid by the customer for the
use of money over time. Plaintiff asserts that, given these criteria, the charge imposed
meets the definition of “interest” regardless of what label the Bank uses, making the
sustained overdraft fee subject to usury laws. She characterizes the initial overdraft fees
as loans made without a specific loan agreement, and the sustained overdraft fee as
interest charged on those loans far in excess of the permissible rate. (Dorsey Complaint
¶¶ 36-37, ECF No. 1 at 12.)
In support of these concepts Plaintiff advances the following progression of
arguments. First, the sustained overdraft fee falls within the definition of “interest” as
explicitly laid out in 12 C.F.R. § 7.4001(a) because it is a “late fee” connected to the
“extension of credit,” and therefore is subject to the prohibition on usurious interest in
the NBA, 12 U.S.C. § 86. (See Pls.’ Resp. to Mot. to Dismiss, Dorsey ECF No. 23 at 1415.) The Bank charged Dorsey the sustained overdraft fee, she asserts, because she
“defaulted” in paying off her negative balance within ten days, similar to the credit card
late fee at issue in Smiley v. Citibank (S.D.), 517 U.S. 735 (1996).6, 7 Moreover, Plaintiff

6

In Smiley, the U.S. Supreme Court deferred under Chevron U.S.A. v. Natural Res. Def. Council, Inc.,
467 U.S. 837 (1984), to the OCC’s determination that a late fee constitutes “interest” under 12 U.S.C. §

10

avers, it is the initial overdraft fee, not the sustained overdraft fee, that compensates the
Bank for its services in processing overdraft transactions. Therefore, the sustained
overdraft fee should not be characterized as a “deposit account service charge” under §
7.4002 and must instead be an interest charge under § 7.4001, compensating the Bank
for advancing funds and credit to the customer. (See Dorsey ECF No. 23 at 17-18.)
Second, Plaintiff argues that Congress, the OCC, and other banking regulators
view the act of honoring an overdraft as an extension of credit and would therefore view
subsequent fees as interest upon that credit. (See Dorsey ECF No. 23 at 19-21.)
Plaintiff quotes Congress’ definition of an “extension of credit” in the Lending Limits
provision of the NBA, which includes, “all direct or indirect advances of funds to a
person made on the basis of any obligation of that person to repay the funds or
repayable from specific property pledged by or on behalf of the person.” 12 U.S.C. §
84(b)(1)(A).8 Plaintiff also appeals to the Joint Guidance On Overdraft Protection
Programs (“Joint Guidance”) issued by the OCC, Federal Reserve, FDIC, and National
Credit Union Administration in 2005, which states: “When overdrafts are paid, credit is

85. Smiley, 517 U.S. at 739-44. Of course, by comparing the instant case to Smiley, Plaintiff inexplicably
glosses over the operative distinction that defeats her reasoning: the late fee imposed in Smiley pertained
to a credit card account, not a deposit account. A credit card account is perhaps the quintessential
example of a contractual relationship where the defining principle is the extension of credit by a bank to a
customer. Late fees charged in this context fit, ineluctably, into the definition of “interest” in § 7.4001(a).
This is not true of fees charged in the context of deposit account services, which fit most naturally under
the authority granted to national banks in § 7.4002(a).
7
Plaintiff urges the Court to consider Richardson v. Nat’l City Bank of Evansville, 141 F.3d 1228 (7th Cir.
1998), and Doe v. Norwest Bank Minnesota, N.A., 107 F.3d 1297 (8th Cir. 1997), with regard to her
theory that the sustained overdraft fees arise from a “default” on an extension of credit. (See Dorsey ECF
no. 23 at 16-17.) Richardson and Doe held that insurance premiums bought by automobile lenders and
charged to borrowers, when the borrowers breached their agreements to maintain insurance on the
financed vehicles, did not constitute “interest” under the NBA. 141 F.3d at 1230-32; 107 F.3d at 1301-03.
These cases are far afield of the analysis in the instant matter. Suffice it to say, they are unpersuasive to
establish that by failing to bring her account balance back into a positive balance within ten business days
Plaintiff “defaulted” on a loan extended to her by the Bank.
8
However, § 84 states that the definition is “for the purposes of this section.” Congress did not include
that definition within § 85 of the NBA, which is the source of Plaintiff’s claim. Moreover, the OCC’s
controlling regulation, 12 C.F.R. § 7.4001, does not incorporate, reference, or cite § 84’s definition.

11

extended.” 70 Fed. Reg. 9127, 9129 (Feb. 24, 2005).9 The Joint Guidance also
mentions state usury laws as among the legal risks that banks must navigate when
implementing overdraft protection programs. See id. at 9130.
Third, because § 7.4001 does not define “extension of credit,” Plaintiff suggests
the Court should look to the definition in Regulation O, 12 C.F.R. § 215.3,10 which
includes “[a]n advance by means of an overdraft, cash item or otherwise.” 12 C.F.R. §
215(a)(2). Plaintiff acknowledges that Regulation O is explicitly directed at extensions of
credit to bank insiders (see 12 C.F.R. § 215.2 (defining “insider” as an executive officer,
director, or principal shareholder, and their related interests)), but insists that it is still
relevant to the questions at issue here because “it is an integral part of the entire
regulatory framework, designed to ensure that insiders are treated in the same manner
as non-insiders.” (See ECF No. 23 at 21 n.8.) Moreover, Plaintiff cites FDIC reporting
regulations, case law from several states, Article 4 of the Uniform Commercial Code,
and two banking treatises for the general proposition that a bank makes a loan when it
honors an overdraft. (See id. at 21-23.)
Fourth, Plaintiff extensively cites the commentary that accompanied the OCC’s
2001 amendments to § 7.4001 (including revision of the definition of “interest” for
purposes of 12 U.S.C. § 85), and extrapolates the notion that the OCC specifically
reserved for future decision the issue of whether sustained overdraft fees constitute
interest. (See ECF No. 23 at 24-26.)11 Therefore, Plaintiff avers, the question remains
9

Plaintiff does not explain how the Joint Guidance is relevant here. The Joint Guidance’s reference to
overdrafts as extensions of credit is made in the context of its generalized discussion of the safety and
soundness considerations faced by financial institutions when implementing overdraft protection
programs. The Joint Guidance does not interpret the NBA or the term “interest” therein.
10
Regulation O is promulgated by the Federal Reserve.
11
This is a very strained reading of the OCC commentary, which does not even mention sustained
overdraft fees, though it peripherally mentions the Video Trax decision in a footnote. See 66 Fed. Reg.

12

open, and there is no regulatory guidance that overcomes her position. (Id.)
Finally, Plaintiff attempts to distinguish the litany of federal decisions that have
held that overdraft fees do not constitute interest by claiming that those decisions
wrongly conceived the direction of the creditor-debtor relationship in the overdraft fee
context (i.e., as an exception to the general rule that the depositor is the creditor and the
bank is the debtor) and wrongly concluded that sustained overdraft charges do not arise
from a credit transaction. (See id. at 26-29.) Plaintiff urges the Court to adopt the
reasoning in Farrell that a sustained overdraft fee differs from an initial overdraft fee
because it is “more of a charge in consideration for the time value of money.” 224 F.
Supp. 3d at 1020, motion to certify appeal granted, No. 3:16-CV-00492-L-WVG, 2017
WL 1325572 (S.D. Cal. Apr. 11, 2017).12

34784-01, 34786-87. The commentary merely states: “In the most recent Federal case related to this
issue of which the OCC is aware, the court held that overdraft fees were not ‘interest’ within the meaning
of 12 U.S.C. 85 and current § 7.4001(a). [citing Video Trax].” Id. at n.11. Even if it is true that the OCC
intentionally reserved proper categorization of sustained overdraft fees for future determination, nothing in
the commentary suggests that the OCC would tend toward including such fees in the interest category
rather than the service charge category. In fact, the Court finds that the text of the commentary lends
itself toward the opposite conclusion. Specifically, the OCC’s comments pertaining to the revision of §
7.4002, “National Bank Non-Interest Charges,” explain that the proposal “eliminated two examples in §
7.4002(a) of the types of non-interest charges and fees that national banks may impose: charges a
bank’s board determines to be reasonable on dormant accounts and reasonable fees for credit reports or
investigations.” The examples were removed from the revised rule because “the explicit reference to the
two types of fees is unnecessary and could be misinterpreted as a limitation on a national bank’s ability to
charge other types of fees.” Id. at 34787 (emphasis added). However, the comments make clear that
“dormant account charges . . . continue to be permissible non-interest charges . . . even though they are
no longer specifically mentioned in the rule.” Id. (emphasis added). Under Plaintiff’s limited conception of
what should qualify as a “service charge,” one would hardly include a fee that a bank imposes merely
because an account sits idle for an itemized period, because the bank has not provided any additional
“service” to the customer as Plaintiff would wish the Court to construe that concept. Yet the OCC explicitly
permits this type of fee as a non-interest charge properly categorized under § 7.4002. The nature of
“dormant account charges,” as a function of the amount of additional “service” provided to the customer,
is sufficiently analogous to sustained overdraft fees that the permissibility of the former counsels toward
the inclusion of the latter under § 7.4002(a).
12
Plaintiff also asserts that Defendant’s Motion to Dismiss should be denied because the arguments
raised by the Bank invoke disputed issues of fact—including whether payment of a debit that creates an
overdraft is an extension of credit—thereby necessitating discovery before the Court adjudicates the
merits of the usury claim. (See ECF No. 23 at 29-30.) However, even the Farrell court—on which Plaintiff
so heavily relies—rejected the need for discovery when certifying an interlocutory appeal on the usury
issue, stating: “The fundamental question is whether a bank’s coverage of an overdraft constitutes ‘an

13

To begin, the Court has little doubt that some of the various regulatory bodies to
which Plaintiff appeals, in certain contexts unrelated to §§ 85-86 of the NBA, either
already consider overdrafts to be “extensions of credit,” or if directly queried would likely
confirm the point. So much is uncontroversial. The second part of Plaintiff’s overarching
argument, however—that sustained overdraft fees must therefore be viewed as interest
charges under the NBA’s usury provision—is a non sequitur. Notably, Plaintiff fails to
cite a single regulation or Congressional source that even mentions sustained overdraft
fees, though this flavor of overdraft fee is ubiquitous throughout the banking industry
and by no means a new phenomenon. Ironically, the statutory, regulatory, case law, and
secondary sources cited by Plaintiff in support of her theory actually undercut the
viability of her claim. This is true because, despite the length, breadth, and diversity of
these sources, with the exception of the Farrell decision, not a single one suggests that
sustained overdraft fees are interest charges distinct from overdraft fees generally. On
the other hand, as discussed below, there is ample evidence to suggest that the most
pertinent regulator, the OCC, considers “overdraft fees” to be deposit account service
charges, not interest.13 Unless and until a controlling authority changes the rather
intuitive premise that sustained overdraft fees are included within that group, the Court’s
ruling on Plaintiff’s usury claim will remain unchanged. Moreover, until that time,
extension of credit.’ No further factual development is necessary to decide this issue. Indeed this Court
and all three other federal district court decisions to decide this issue did so on a motion to dismiss.”
Farrell v. Bank of Am., N.A., No. 3:16-CV-00492-L-WVG, 2017 WL 1325572, at *1 n.1 (S.D. Cal. Apr. 11,
2017) (citing Mcgee, 2015 WL 4594582 (S.D. Fla 2015); Shaw, 2015 WL 6142903 (N.D. Okla. 2015); In
re TD Bank, N.A., 150 F. Supp. 3d 593 (D.S.C. 2015)).
13
The OCC has confirmed this distinction multiple times, including in OCC Interpretive Letter No. 1082,
wherein the OCC concluded: “When the [b]ank processes an overdraft item and recovers a fee for doing
so, it is not exercising its right to collect a debt. Rather, the processing of an overdraft and recovery of an
overdraft fee by balancing debits and credits on a deposit account are activities directly connected with
the maintenance of a deposit account.” OCC Inter. Ltr. 1082 (May 17, 2007) (emphasis added). Nothing
in the relevant OCC regulations indicates any inclination on the OCC’s part to treat sustained overdraft
fees differently than initial overdraft fees in this respect.

14

Plaintiff’s attempt to shoehorn sustained overdraft fees into the usury statute remains a
creative but unsuccessful pleading theory, nothing more.
The Court agrees with the majority of federal courts that have considered these
issues and finds that the sustained overdraft fee is not interest within the meaning of 12
U.S.C. § 85 and 12 C.F.R. § 7.4001. As such, the Dorsey Complaint fails to state a
plausible claim for relief and is hereby dismissed. The OCC clarified any ambiguity on
the point of whether overdraft fees constitute interest in the following commentary
entitled, “Definition of ‘Interest’ for Purposes of 12 U.S.C. 85 (Revised § 7.4001(a)),”
issued when promulgating a final rule regarding banking activities and operations dated
July 2, 2001:
The OCC proposed revising § 7.4001 to clarify the scope of the term “NSF
fees” for purposes of 12 U.S.C. 85. Section 85 governs the interest rates
that national banks may charge, but it does not define the term “interest.”
Section 7.4001 generally defines the charges that are considered
“interest” for purposes of section 85, and then sets out a nonexclusive list
of charges covered by that definition. The list includes “NSF fees.”
The inclusion of “NSF fees” in the definition of “interest” was intended to
codify a position the OCC took in Interpretive Letter 452, issued in 1988.
IL 452 concluded that charges imposed by a credit card bank on its
customers who paid their accounts with checks drawn on insufficient funds
were “interest” within the meaning of section 85. The charges were
referred to as “NSF charges” in the letter. The term, however, is also is
[sic] commonly used to refer to fees imposed by a bank on its checking
account customers whenever a customer writes a check against
insufficient funds, regardless of whether the check was intended to pay an
obligation due to the bank. These different uses of the term “NSF fees”
have created ambiguity about the scope of the term as used in §
7.4001(a).
The proposal invited comments on a change to § 7.4001(a) that would
clarify that the term “NSF fees” includes only those fees imposed by a
creditor bank when a borrower attempts to pay an obligation to that bank
with a check drawn on insufficient funds. Fees that a bank charges for
its deposit account services—including overdraft and returned check
charges—are not covered by the term “NSF fees” as that term is
15

used in § 7.4001(a). The OCC received no objections on that proposed
change, and, therefore, we adopt it in the final rule as proposed. change.
[sic] Thus, we are clarifying the definition of “interest” by stating in the final
rule that interest includes creditor-imposed NSF fees that are charged
when a borrower tenders payment on a debt with a check drawn on
insufficient funds.
66 Fed. Reg. 34784-01, 34786-87 (emphasis added). It is of course true that this
section does not discuss “sustained” overdraft fees specifically. However, the Court
remains unconvinced that a one-time sustained overdraft fee constitutes the accrual of
interest on an extension of credit merely because it occurs ten days after the initial
overdraft fee is imposed. In general, the nature of interest is the application, over time,
of an established rate to an identified principal. In contrast, the sustained overdraft fee is
a flat $20.00 fee, applied universally after ten consecutive days of negative balance and
without regard to the total amount of the negative balance or fluctuations within that
negative balance during the ten-day period. (See Dorsey Complaint ¶¶ 12-16, ECF No.
1 at 6-7); but see Smiley, 517 U.S. at 745 (finding that the non-variable nature of late
fees charged on a credit card account did not remove such fees from the purview of
the term “interest” in 12 U.S.C. § 85, and setting forth definitions of “interest” unlimited
to charges expressed as a function of time or of amount owing).14 Most importantly, the
sustained overdraft fee arises from the terms of the PDAA, and is therefore properly
categorized as a deposit account service charge.
Federal courts that have considered the question of whether NSF fees (including
overdraft fees) arising from a deposit agreement can be “interest” for purposes of the
NBA have consistently held that they cannot constitute “interest,” and have dismissed
claims under 12 U.S.C. § 85 that relate to overdraft fees. See Armstrong v. Colonial
14

The Court has explained, supra n.6, why Smiley does not control the outcome of the instant motion.

16

Bank, N.A., 196 F. App’x 872 (11th Cir. 2006) (affirming district court’s order concluding
that overdraft charges are not interest and dismissing related action for failure to state a
claim); In re Wash. Mut. Overdraft Prot. Litig., 2004 WL 5046210, at *5 (C.D. Cal. Apr.
26, 2004) (applying the NBA’s definition of “interest” to the Home Owner’s Loan Act and
concluding that overdraft fees are not interest because they are “a deposit account
service charge arising from the terms of the depository agreement” and thus controlled
by 12 C.F.R. § 7.4002), aff’d in part, rev’d in part on other grounds, 201 F. App’x 409
(9th Cir. 2006); Video Trax, Inc., 33 F. Supp. 2d at 1049-51; Terrell v. Hancock Bank, 7
F. Supp. 2d 812, 816 (S.D. Miss. 1998) (assuming for purposes of argument that the
NBA applied to defendant state bank and concluding that overdraft fees are not interest
because they “arise[] from the terms of the Depository Agreement” and are addressed
in 12 C.F.R. § 7.4002); Nicolas v. Deposit Guar. Nat’l Bank, 182 F.R.D. 226, 231 (S.D.
Miss. 1998) (same); Soto, 2011 WL 1050213, at *8-*9; Cargile, 2010 WL 5491200, at
*3-*4.
The majority of federal courts that have considered the specific question at issue
in the case sub judice, whether sustained overdraft fees constitute “interest” for
purposes of 12 U.S.C. § 85, have held that such fees are not interest. In McGee v. Bank
of Am., N.A., 2015 WL 4594582, at *4 (S.D. Fla. July 30, 2015), aff’d, 674 F. App’x 958
(11th Cir. 2017), the court held that an “extended overdrawn balance charge” was not
interest within the meaning of 12 U.S.C. §§ 85 and 86, and dismissed the plaintiffs’
complaint for failure to state a plausible claim for relief. The McGee court specifically
considered and rejected many of the same arguments raised by Plaintiff in this case,
namely: 1) that the sustained overdraft fees cannot be non-interest charges because no

17

additional service is provided, 2) that the sustained fees are “interest” because they
qualify as “late fees” within the text of 12 C.F.R. § 7.4001(a), (3) that the initial overdraft
fees are extensions of credit, and (4) that the Plaintiff’s arguments raise questions of
fact inappropriate for resolution at the pleading stage. Id. at *3-*4. The McGee court
stated, “The [extended overdrawn balance charges] at issue are flat fees contingent
upon a customer’s failure to remedy an overdrawn account, rather than payment for the
use of money, and are not ‘interest’ within the ordinary meaning of the word.” Id. at *3
(citing Video Trax, 33 F. Supp. 2d at 1050). Furthermore, “the extended overdrawn
balance charges—like initial overdraft charges—do not arise from a credit transaction,
and are not interest under 12 U.S.C. § 85.” Id. (emphasis added). In so holding, the
McGee court relied upon the reasoning in Video Trax, “that flat fees for overdrafts serve
purposes other than compensation for the use of money, such as covering the costs of
banking services, discouraging harmful customer behavior, and fostering the safety and
stability of the banking system.” Id. at *2 (citing Video Trax, 33 F. Supp. 2d at 1050-53).
The Court continues to find the reasoning in McGee persuasive.
Likewise, in Shaw v. BOKF, N.A., 2015 WL 6142903, at *4 (N.D. Okla. Oct. 19,
2015), the court held that the “extended overdraft fees” being challenged by the
plaintiffs were not “interest” as that term is defined in the NBA. The Shaw court relied
upon the reasoning and results in McGee and Video Trax for the proposition that “the
extended overdraft charges were incurred as part of maintaining a deposit account, not
a credit transaction, and the extended overdraft charges could not be considered
interest.” Id. at *3 (citing McGee, 2015 WL 4594582 at *3). In addition, the Shaw court
directly confronted the plaintiffs’ argument that 12 C.F.R. § 215, also known as

18

Regulation O, defines overdrafts as “extensions of credit.” As the Shaw court explains:
Regulation O is entirely inapplicable to the ordinary bank customer with a
deposit account, because Regulation O was intended to prevent “banking
abuses by bank insiders.” This understanding of Regulation O is
confirmed by 12 C.F.R. § 215.1, which states that the “purpose and
scope” of Regulation O is to govern “any extension of credit made by a
member bank to an executive officer, director, or principal shareholder of
the member bank . . .” or “any extension of credit made by a member bank
to a company controlled by such a person . . . .” Regulation O does not
apply to a transaction between a bank and an ordinary customer with a
deposit account, and the Court does not find that the definition of
“extension of credit” stated in Regulation O is applicable to this case.
2015 WL 6142903 at *4 (internal citations omitted).15
Similar to the plaintiffs in Shaw, Plaintiff Dorsey had no credit card account with
TD Bank, such that the imposition of “late fees” might fall squarely within the definition
of interest charges in § 7.4001(a). Rather, Plaintiff maintained a deposit account with
the Bank and overdrew that account, at which point the Bank provided the service of
covering her overdrafts. Accordingly, Plaintiff was not charged interest for the use of
money, but was charged fees for overdrawing her account and for failing to remedy the
status of those overdrafts within the contractually allotted time period. It is immaterial
that TD’s honoring debit transactions into overdraft may be construed as “extensions of
credit” or “unsecured loans” in certain unrelated contexts (e.g., FDIC reporting
requirements, the Joint Guidance, Article 4 of the UCC, etc.). Such a categorization
does not affect the status of sustained overdraft fees, which indisputably arise from the
terms of a deposit agreement, and therefore fit most naturally within the meaning of
“deposit account service charges” in § 7.4002(a). See Video Trax, 33 F. Supp. 2d at
1050.

15

Regulation O does not purport to define “interest” under the NBA and 12 C.F.R. § 7.4001, nor would it
make sense for it to do so, because the Federal Reserve is not charged with interpreting the NBA.

19

There is now one district court decision that disagrees with this majority view. In
Farrell, the court denied the defendant bank’s motion to dismiss and held that the
plaintiff had adequately alleged that an “extended charge” levied against deposit
account holders for failing to rectify an overdrawn balance within five days constituted
“interest” within the meaning of 12 U.S.C. § 85. 224 F. Supp. 3d at 1022. The Farrell
court adopted many of the same arguments made by Plaintiff Dorsey in this case, and
in particular the assertion that by advancing funds to an over-drafted depositor a bank
creates a debt on which the customer pays interest. Id. at 1020-22. However, the Farrell
court did not cite OCC Interpretive Letter No. 1082, which squarely contradicts this
construction. (See supra n.13.) Moreover, the Farrell court failed to distinguish Smiley v.
Citibank (South Dakota), N.A., which ruling plainly pertained to late fees charged to a
credit card account, not a deposit account. Finally, the Farrell court relied upon the
characterization of overdrafts as “extensions of credit” in Regulation O and the Joint
Guidance without significant explanation as to why those sources should apply to a
claim under § 85 of the NBA. With respect, the Court disagrees with Farrell and finds
that decision unpersuasive to modify its previous holdings in this case. (See ECF No.
141 (denying Plaintiff Robinson’s Motion to Reconsider based upon Farrell).)
As in previous unsuccessful usury cases, Plaintiff attempts to distinguish the
sustained overdraft fee from initial overdraft fees by claiming, inter alia, that the Bank
provides no additional service that would justify the imposition of the sustained fees as a
“service charge.” The McGee court succinctly dealt with this argument:
[T]he text of § 7.4002(b) does not require that all non-interest charges be
assessed in connection with services. Instead, it describes several factors
that a bank should consider in arriving at a reasonable non-interest
charge, which include the cost of any underlying services. See Video Trax,
20

33 F. Supp. 2d at 1050-51. On the other hand, § 7.4002(a) provides: “A
national bank may charge its customers non-interest charges and fees,
including deposit account service charges.” By implication, deposit
account service charges are only a subset of these non-interest charges.
That a charge is based upon something other than services does not
necessarily remove it from the category of non-interest charges.
2015 WL 4594582, at *3. But assuming arguendo that additional services are necessary
to justify the fee as a non-interest charge, the Court need not become too imaginative to
identify services rendered by the Bank for which the sustained fee, but not initial
overdraft fees, provides compensation. For one thing, the sustained fee can easily be
viewed as compensating the Bank for holding open a non-credit type account, though it
remains in the red for an itemized period. For another, it can readily be associated with
the additional monitoring that the Bank must employ to protect itself against losses
when a deposit account holder fails to remedy her negative balance. Moreover, the
sustained fee, just like initial overdraft fees, serves the important goal of deterring
misuse by customers of deposit account services. See 12 C.F.R. § 7.4002(b)(2)(iii)
(itemizing deterrence as one factor a bank must consider when establishing non-interest
charges and fees in accordance with safe and sound banking principles). The initial fees
deter the act of running a deposit account into the red; the sustained fee deters the
failure to remedy that situation in accordance with the contract.
In summary, Plaintiff Dorsey’s reworked arguments are no more persuasive than
Plaintiff Robinson’s previous attempts to cram a square peg into the proverbial round
hole. Accordingly, the Dorsey Complaint fails to state a claim and is dismissed.
CONCLUSION
For the reasons set forth above, Defendant’s Motion to Dismiss (Dorsey ECF No.
15) is GRANTED.
21

IT IS SO ORDERED.
/s/ Bruce Howe Hendricks
United States District Judge
February 28, 2018
Greenville, South Carolina

22