Iowa Supreme Court Holds Overdraft Fees Are Not Extensions of Credit Subject to Usury Laws

The Iowa Supreme Court recently held that a bank’s overdraft fees did not violate a state usury statute because the fees were not extensions of credit.  See Legg v. W. Bank, 873 N.W.2d 763 (Iowa 2016).  In the case, the plaintiffs were bank customers who paid a number of overdraft fees when they overdrafted their bank account.  They then filed a proposed class action against the bank, arguing, among other allegations, that the $27.00 overdraft fee violated Iowa’s usury laws for extensions of credit.  The bank filed a motion for summary judgment, which the district court denied.  On appeal, the Supreme Court reversed the denial of summary judgment on the usury claim.  It held that Iowa law defines credit as “the right granted by a person extending credit to a person to defer payment of debt . . .”  Because the bank immediately collected the overdraft payment when the customer deposited sufficient funds into his or her account, the customer did not have the right to “defer payment of debt,” and the overdraft fees, therefore, were not extensions of credit subject to usury laws. 

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