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Deposit Insurance Assessment Appeals: Guidelines & Decisions
AAC- 2005-01 (June 16, 2005)
At its meeting held on April 11, 2005, the Committee allowed the Bank, pursuant to the Guidelines for Appeals of Deposit Insurance Assessment Determinations1, to appear and make an oral presentation in support of its case for an assessment refund. After carefully considering all of the written and oral submissions and facts of this case, the Committee has determined that the Banks appeal must be denied.
In 1998, the Banks holding company (Parent) purchased a Savings Association Insurance Fund (SAIF) member institution (Bank X). The deposits of the acquired SAIF-insured institution were distributed to several of the holding companys Bank Insurance Fund (BIF) insured subsidiary banks, including Bank Y. Acquisition of these SAIF-insured deposits made Bank Y - and the other subsidiaries - Oakar banks, that is, institutions required to pay assessments to both primary (BIF) and secondary (SAIF) insurance funds. See 12 U.S.C. § 1815(d)(3). Bank Y received approximately $2 billion of Bank Xs deposits.
Bank Ys December 31, 1998 Call Report, filed on January 31, 1999, contained an error resulting in the underreporting of the acquired SAIF deposits. That Call Report was the basis for the assessment Bank Y paid on March 30, 1999. On February 28, 1999, an invoice based on the underreported deposits was provided to Bank Y by the FDIC. The invoiced amount was debited from Bank Ys account on March 30, 1999; as a result, Bank Y underpaid its assessment for the January 1999 semiannual period. The Bank is Bank Ys successor institution.
The FDICs Division of Finance (DOF) Assessment Management Section conducted compliance audits on four of the holding companys subsidiaries, including the Bank. The audits were completed in the first quarter of 2004 and revealed discrepancies in Bank Ys December 31, 1998 Call Report, as well as the Call Reports of the other three subsidiaries.2 Call Report amendments for all four subsidiaries were prepared by DOF.
The amendments to Bank Ys December 31, 1998 Call Report resulted in additional assessments owed to the FDIC in the amount of $246,259.20. Bank Y was a 1A rated institution at the time it filed its December 1998 Call Report; the additional amount is a Financing Corporation (FICO) assessment required by the Deposit Insurance Funds Act of 1996 (DIFA).3
The $246,259.20 assessment adjustment includes interest and appears on invoice number 01739112, prepared and printed by the FDIC on March 11, 2004. A separate invoice (number 01731714) was prepared March 4, 2004, reflecting the Banks assessment for the second half (April - June) of the January 2004 semiannual period.
On March 10, 2004, DOF conducted a conference telephone call with officials of the holding company to discuss the additional assessments. Holding company officials did not dispute the data revisions and the amendments to Bank Ys December 31, 1998 Call Report or the Call Reports for any of the other affected subsidiaries. As to the Bank Y underpayment, however, the holding company asserted that the five-year statute of limitations on assessment actions at 12 U.S.C. § 1817(g) had expired and, for that reason, the FDIC could no longer recover from the Bank any monies owed based on the amended December 31, 1998 Call Report information.
DOF took a different view of the statute of limitations and debited $246,259.20 from the Banks ACH account on March 30, 2004 for the underpaid 1999 assessment.
By letter dated April 28, 2004, the Bank filed with DOF a request for revision of the $246,259.20 assessment. According to the Bank, the adjustment amount was not reflected on its March 15, 2004 invoice, in violation of the FDICs regulations, 12 C.F.R. § 327.3(c)(1) and (g), and was without proper authority and therefore inappropriate.
Further, the Bank contended that the five-year statute of limitations precluded FDIC collection of the underpayment. According to the Bank, the FDICs cause of action accrued no later that February 28, 1999, the date of the original incorrect invoice. Collection of the underpayment on March 31, 2004 was, in the Banks view, too late. In support, the Bank cited Norwest Bank Minnesota National Assn v. FDIC, 312 F.3d 447 (D.C. Cir. 2002).
DOF denied the Banks request by letter dated September 7, 2004. According to DOF, the FDICs claim for recovery accrued on March 30, 1999, when Bank Y underpaid its assessment. Rejecting the Banks view of Norwest, DOF noted that the FDIC could not have filed suit or instituted an administrative action for recovery of an underpayment if no underpayment had yet occurred. DOF also found that an invoice reflecting the additional amounts owed to the FDIC was mailed to the Bank on or before March 15, 2004, in full compliance with 12 C.F.R. § 327.3(c)(1).
By letter dated October 5, 2004, the Bank requested further review by the DOF Director. The Bank reasserted that the FDICs right to recover the 1999 underpayment accrued when the AADA was miscalculated, placing accrual as early as January 31, 1999 -- when Bank Ys Call Report was filed -- but no later than February 28, 1999, the date of the erroneous invoice.
The DOF Director upheld the prior DOF review on December 2, 2004.
On January 3, 2005, the Bank (through its holding company) appealed DOFs decision to this Committee. Norwest, the Bank urges, holds that accrual occurs with an AADA miscalculation. The Bank posits two accrual dates. As the approving agency under the Bank Merger Act, the Bank asserts that the FDIC should have uncovered the error and so accrual occurred with the filing of the incorrect Call Report on January 31, 1999. Alternatively, the Bank contends that accrual occurred no later than February 28, 1999, when the FDIC invoiced the underpayment calculated from the incorrect Call Report. By these dates, the Bank argues, the legal and factual prerequisites to suit were in place and the miscalculation had been made.
Lastly, the Bank asserts that the FDIC violated its regulations by not invoicing the Bank 15 days prior to the payment date, as 12 C.F.R. § 327.3(c)(1) requires, and by failing to note the underpayment adjustment along with the Banks current assessment on the March 15, 2004 invoice, as mandated under 12 C.F.R. § 327.3(g).
Under Section 1817(g), an action or proceeding for the recovery of any assessment due the FDIC, or for the recovery of any excess amount paid to the FDIC, must be brought within five years after the right accrued for which the claim is made. The standard legal rule is that accrual occurs when the plaintiff has a complete and present cause of action, i.e., when suit can be filed and relief obtained. Bay Area Laundry and Dry Cleaning Pension Trust Fund v. Ferbar Corp. of Calif., 522 U.S. 192, 201 (1997); Reiter v. Cooper, 507 U.S. 258, 267 (1993); Rawlings v. Ray, 312 U.S. 96, 98 (1941).
The inquiry here is whether DOF brought its action to recover Bank Ys $246,259.20 underpayment within Section 1817(g)s five-year limitations period. To answer this, the Committee must ascertain when DOFs claim accrued (i.e., when did the statute of limitations begin to run) and when DOF brought its action or proceeding to collect the underpayment. If the two dates are more than five years apart, DOFs collection is barred by Section 1817(g).
The Committee has previously addressed the question of accrual in assessment matters. In AAC Case No. 2002-04 (July 18, 2002), the bank alleged that its AADA had been incorrectly calculated in 1994, resulting in an assessment overpayment. To resolve the matter, the Committee identified the alleged calculation error (a growth worksheet filed in December 1994) and the semiannual assessment it first affected (the January 1995 semiannual period). The Committee ruled that the banks claim accrued on January 31, 1995, when its first alleged SAIF overpayment was due. AAC Case No. 2002-04 at 5. Although the bank alleged it had pursued its claim for a refund with the FDIC over a five-year period, the Committee found the claim was first brought in a letter to the FDIC dated October 24, 2001. Because the bank waited over six years to bring the claim, the Committee ruled the claim was untimely under Section 1817(g).
Bank Ys calculation error occurred on the December 31, 1998 Call Report. That error first affected Bank Ys January 1999 semiannual period, specifically, the payment made for the second half of that period. The incorrect payment was first due on March 30, 1999, the same day it was debited from Bank Ys ACH account. Under this Committees precedent, the accrual date for DOFs cause of action to recover of Bank Ys underpaid assessment was March 30, 1999.
The Bank, however, urges a different test for establishing accrual dates in assessment matters. Citing as support the decision in Norwest Bank Minnesota National Assn v. FDIC, 312 F.3d 447 (D.C. Cir. 2002), the Bank asserts that accrual occurs at the time of the miscalculation or, at the latest, when the invoice based on that miscalculation is issued. In the Committees view, the Banks analysis of Norwest is incorrect.
Accrual of a cause of action under Section 1817(g) was at issue in the Norwest case. According to Norwest, the FDIC incorrectly interpreted the effective date provision of the Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA) and applied the wrong growth rate component to computations of the growth in Norwests deposit base that occurred after December 31, 1991, improperly allocating its BIF/SAIF ratio. Norwest argued that its suit for refund was timely filed under Section 1817(g), since it was filed within five years after 1995, the date Norwest first suffered financial injury arising from the divergence of BIF and SAIF assessment rates.
The court analyzed section 1817(g) and held that the five-year statute of limitations accrued when Norwest paid its disputed BIF and SAIF assessment in 1992.
Normally, the Norwest court declared, a claim accrues when the factual and legal prerequisites to filing suit are in place. In the courts view, In January 1992, when the alleged miscalculation of Norwests AADA occurred, Norwest could have requested a refund from the agency or it could have brought suit in court alleging that the miscalculation resulted in an overpayment to the SAIF. 312 F.3d at 451 (emphasis added).
The Norwest court viewed the miscalculation and payment as having occurred at the same time or very close together (it refers to both as occurring in January 1992). Viewing the language in its entirety, the courts meaning is inescapable: But here nothing prevented Norwest from learning in 1992 that its AADA may have been overstated, thus resulting in an overpayment to the SAIF. 312 F.2d at 52 n.4 (emphasis added).
The Banks interpretation requires a truncated reading of the courts decision. The Committee rejects the Banks assertion that under Norwest suit may be maintained based on a miscalculated Call Report or invoice. It is axiomatic that incorrect payment must be made before the remedies named by the court - refund from the agency or suit for overpayment - can be sought. Under Norwest, accrual of the banks cause of action for refund of assessments occurred with its first alleged overpayment.
The FDIC could not have filed suit or taken any action to collect Bank Ys underpaid assessment on January 31, 1999, when Bank Y filed its inaccurate Call Report, or on February 28, 1999, when the inaccurate invoice based on that Call Report was issued. No amount had yet been paid, nor was payment due. Accordingly, the Committee finds that the FDICs claim for underpayment accrued when Bank Y underpaid its assessment on March 30, 1999.
This result is consistent with the Norwest decision, this Committees precedent (AAC No. 2002-04), and with case law generally. See Dye v. United States, 121 F.3d 1399, 1407 (10th Cir. 1997) (taxpayer not entitled to refund until taxes overpaid); Fisher v. United States, 80 F.3d 1576, 1579 (Fed. Cir. 1996) (overpayment must appear before refund authorized).
The FDIC collected the underpaid Bank Y assessment by debiting the Banks ACH account on March 30, 2004. That action fell within five years from the date the action for underpayment accrued - albeit the last day of the five-year period - and was timely under Section 1817(g).
The Bank next asserts that the FDIC twice violated its regulations: first, by not invoicing the Bank 15 days prior to the March 30, 2004 payment date, as 12 C.F.R. § 327.3(c)(1) requires,4 and again by failing to note the underpayment adjustment along with the Banks current assessment on the March 15, 2004 invoice, as mandated under 12 C.F.R. § 327.3(g). At the oral presentation, the Bank stated that it did not receive the adjustment invoice prior to the March 30, 2004 debit, which appears to be the salient point behind these claimed regulatory violations.
The FDIC provided an invoice to the Bank no later than 15 days prior to the payment date, as required under section 327.3(d)(1). An invoice for the underpayment (invoice number 01739112, which reflected the January 1999 Bank Y underpayment) was printed on March 11, 2004 and mailed to the Bank on March 15, 2004 (a preliminary copy was faxed to the Bank on March 4, 2004).
In addition, section 327.3(g) does not require that the March 15, 2004 invoice (invoice number 01731714, which contained the January 2004 semiannual period assessment) reflect the prior AADA adjustment. The regulatory language on this point is permissive, not mandatory - quarterly assessment invoices provided by the Corporation may reflect prior adjustments (see 12 C.F.R. § 327.3(g)) and affords no basis for the Banks argument.
Finally, the Committee notes that even where insured institutions do not receive an assessment invoice, they are not excused from payment of the related assessment. Rather, under the regulations, an institution must notify the FDIC if an assessment invoice is not received by the invoice date. The regulations further state that failure to provide prompt notice to the FDIC shall not affect the institutions obligation to make full and timely assessment payment. 12 C.F.R. § 327.3(i).
The FDICs action to recover Bank Ys underpaid assessment accrued on March 30, 1999, the date Bank Y underpaid its assessment. The FDIC collected that underpayment from the Bank - Bank Ys successor institution - on March 30, 2004. The action to collect the underpayment - the March 30, 2004 debit - fell within the five-year statute of limitations for assessment actions set out in 12 U.S.C. § 1817(g). Collection of the underpaid assessment is not time barred. The FDIC properly invoiced the adjustment according to its regulations. Accordingly, for the reasons set forth in this decision, the Banks appeal is denied.
Pursuant to authority delegated by the FDIC Board of Directors to the Committee, the Committees decision constitutes the FDICs final agency action on this matter.
By direction of the Assessment Appeals Committee, dated June 16, 2005.
113-2004 (Oct. 13, 2004).
2 The discrepancies in question related to calculation of the institutions adjusted attributable deposit amounts (AADA). An Oakar bank is a member of the BIF, but a portion of its assessment base is allocated to the SAIF, its secondary fund. The deposits attributed to the secondary fund are based upon the institutions AADA, which is computed and adjusted over time pursuant to the statutory formula contained in the Oakar amendment, 12 U.S.C. § 1815(d)(3)(C).
3 DIFA provided for the payment of interest on bonds issued by FICO, to be paid by all institutions covered by FDIC insurance. The FICO obligation was split between BIF and SAIF deposits, but the SAIF rate was five times the BIF rate. See 12 U.S.C. § 1441(f)(2). After December 31, 1999, the FICO rate for BIF and SAIF deposits was equalized. See Pub. L. No. 104-208, § 2703(c), 110 Stat. 3009-485 (1996).
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