Iowa Supreme Court Finds NSF Charges Are Not Usurious Under Iowa Consumer Credit Code

A putative class action was filed against a state-chartered Iowa bank. The plaintiffs alleged that the bank had charged them nonsufficient fund (NSF) fees when the plaintiffs used their checking cards to create overdrafts in their checking accounts which the bank paid on their behalf. The plaintiffs argued that the payment of the charges by the bank was an extension of credit under the Iowa Consumer Credit Code and that the NSF fee charged by the bank constituted a usurious finance charge.

In response, the bank filed a motion for summary judgment and argued that the payment of the overdraft amounts did not constitute an extension of credit and that the NSF fees charged were not finance charges subject Iowa’s usury cap. The trial court denied the bank’s motion. The bank then appealed to the Iowa Supreme Court.

On appeal, the Supreme Court reversed the trial court’s decision. The Supreme court first explained that the definition of credit in the ICCC is much more narrow than the common law definition. Under the ICCC credit is defined as “the right granted by a person extending credit to a person to defer payment of debt, to incur debt and defer its payment, or to purchase property or services and defer payment therefor.”

After reviewing the transactions at issue, the Supreme Court found that they did not constitute credit because the plaintiffs did not have the right to defer the payment of the NSF fees. Instead, these fees were immediately due and payable at the time the customer’s account became overdrawn. The Supreme Court held that because the plaintiffs lacked the right to defer payment of NSF fee, the transaction was not an extension of credit. Because the Court found that the transaction was not an extension of credit, it did not need to address whether the NSF fee constituted a finance charge.

Legg v. West Bank, 2016 Iowa Sup. LEXIS 3 (Iowa Jan. 22, 2016)

About Patrick Siegfried

Patrick Siegfried is the author of the Usury Law Blog. Patrick is a practicing attorney in Bethesda, Maryland. Patrick’s work focuses on issues regarding alternative small business financing. He can be reached at
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