Bankers Lose Court Battle on Cutback in Fed Dividend Payments (Updated)
Bankers Lose Court Battle on Cutback in Fed Dividend Payments (Updated)
* Bank group loses court challenge to cut in Fed dividends
* Suit said 2015 law steered $1 billion away from 72 banks
By Chris Bruce
(BNA) -- The U.S. Court of Federal Claims Oct. 27 dismissed a lawsuit by the American Bankers Association lawsuit and a Seattle-based national bank that said the U.S. government breached a contract and steered more than $1 billion in Federal Reserve dividends away from banks.
The February lawsuit by the ABA and Washington Federal N.A., a Seattle-based national bank, centered on the 2015 Fixing America's Surface Transportation Act (Am. Bankers Ass'n v. United States, Fed. Cl., 17-cv-00194, 10/27/17).
Bankers said the FAST Act changed the terms of Fed dividends paid to roughly 72 of the nation's banks, cutting what bankers said was a guaranteed 6 percent rate to roughly 2 percent in 2016. They said that beached a contract for a promised 6 percent rate, and also asserted a claim that the government violated the taking clause of the Fifth Amendment to the U.S. Constitution.
The ABA and Washington Federal filed the suit as a class action, aiming to represent roughly 72 banks with more than $10 billion in assets that are members of the Federal Reserve System. They filed an amended complaint in April.
However, Chief Judge Susan G. Braden dismissed the suit in an opinion released under seal on Oct. 27 and made public on Oct. 30.
Braden held the ABA doesn't have standing, saying the amended complaint never alleged that the ABA suffered monetary injury or that ABA-member banks assigned to the ABA the banks' right to recover damages on their behalf. Although Braden held Washington Federal had standing to press the suit, she ordered dismissal, saying Section 31 of the statute provides that the law may be amended, altered, or repealed.
"In short, the Federal Reserve Act conferred no right to Washington Federal or any other holder of Federal Reserve Bank stock to receive a dividend at any rate certain that Congress could not amend, change, or even eliminate," Braden said.
Braden also dismissed Washington Federal's takings claim, saying among other points that its alleged property interest rested on its contract claim. "For these reasons, the court has determined that, although Washington Federal had an expectation that it would continue to receive an annual six percent dividend on its Federal Reserve Bank stock, it did not have a cognizable private property interest subject to the Taking Clause of the Fifth Amendment to the United States Constitution," Braden said.
The case was argued in July. "We are carefully reviewing the decision with our co-plaintiff and discussing our next steps to ensure banks' economic and legal rights are protected going forward," ABA spokesman Jeff Sigmund said in an Oct. 30 email to Bloomberg Law.
(Updated to include details from the opinion, which was released Oct. 30)
To contact the reporter on this story: Chris Bruce in Washington at cbruce@bna.com
To contact the editor responsible for this story: Michael Ferullo at MFerullo@bna.com