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Published September 22, 2010, 06:52 PM

ND Supreme Court Upholds $12k Bank Overdraft Fee

The North Dakota Supreme Court ruled that a bank acted reasonably when it charged a frequent bad-check writer almost $12,000 in overdraft fees over more than four years.

BISMARCK, N.D. (AP) — The North Dakota Supreme Court ruled that a bank acted reasonably when it charged a frequent bad-check writer almost $12,000 in overdraft fees over more than four years.

In a unanimous opinion issued Tuesday, the court upheld Southeast District Judge John Paulson's ruling in favor of Quality Bank of Fingal, a rural Barnes County community about 20 miles southeast of Valley City, in its dispute with Lynette Cavett, who used a checking account at the bank for her hog-raising business.

Court records say the bank charged Cavett overdraft fees on 842 occasions from January 2004 until June 2008. They were assessed in varying amounts, depending on the size of the overdraft, and totaled $11,776 during the period. For a $10,000 overdraft, for example, the bank charged Cavett's account $100 a day.

The Supreme Court's ruling said the bank disclosed the fees during the four years, and that Cavett occasionally paid them off with large deposits. Court records say she challeged the fees only when the bank sued her in November 2008 to collect $78,457 on her overdrawn account, a figure that included the overdraft fees.

Cavett argued the fees were "unconscionable" and said they would be considered much too high if they were figured as interest payments on borrowed money.

The Supreme Court rejected Cavett's argument. It did not take up the interest-rate question, but the opinion by Justice Carol Ronning Kapsner said other courts that applied federal law on the subject "have resoundingly rejected the argument that overdraft fees are the equivalent of interest."

"The fees were based on ranges of overdrafts so bank customers would know the cost of overdrawing their account," Kapsner wrote. "While the fees increased as the overdraft became larger, the cost in relation to the amount of the overdraft became smaller, and customers were aware of such fact before they incurred overdraft fees."

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