## Facts

- Under the National Bank Act, banks were prohibited from paying interest on checking (demand deposit) accounts.
- Otero Savings & Loan Association (Otero) offered customers transaction-account services while still paying interest by using an arrangement that authorized Otero to automatically transfer funds from customers’ interest-bearing savings accounts to cover checks written by those customers.
- Otero customers wrote checks that were presented for payment and cleared through the Federal Reserve check-clearing (clearinghouse) system.
- The Board of Governors of the Federal Reserve System (the Board) proposed to take action that would result in the Board refusing to accept or process Otero customers’ checks through the Federal Reserve clearinghouse system.
- Otero alleged that exclusion from Federal Reserve clearing would interrupt banking services for thousands of its customers.
- Otero also alleged that being cut off from the Federal Reserve clearing system would harm Otero’s reputation and goodwill in ways not readily measurable in money damages.
- Otero sued the Board and sought a preliminary injunction preventing the Board from excluding Otero customers’ checks from Federal Reserve clearing while the case proceeded.

## Issues

1. Whether Otero was entitled to a preliminary injunction preventing the Board from refusing to accept or process Otero customers’ checks through the Federal Reserve clearinghouse system pending resolution of the underlying dispute.

## Decision

- The court granted preliminary injunctive relief.
- The Board was enjoined from taking action that would exclude Otero customers’ checks from processing through the Federal Reserve clearinghouse system while the litigation continued.
- The court’s order preserved existing check-clearing arrangements to avoid immediate disruption to Otero customers’ transaction services.

## Legal Principles

- A preliminary injunction is an equitable remedy used to prevent imminent harm and preserve existing conditions pending a final decision on the merits.
- Threatened interruption of essential customer transaction services, along with damage to reputation and goodwill that cannot be easily quantified, may constitute irreparable harm supporting interim injunctive relief.
- In deciding whether to grant preliminary relief, courts weigh the likelihood of success (or, at minimum, substantial questions going to the merits), the risk of irreparable injury, the balance of harms, and the public consequences of disrupting established payment and collection channels.
- Where proposed government action would effectively deny access to a widely used clearing mechanism and cause immediate operational disruption, maintaining the status quo may be warranted until the legality of the action is resolved.

## Conclusion

Otero challenged the Board’s proposed action to stop accepting and processing its customers’ checks through the Federal Reserve clearinghouse system, arguing that the cut-off would disrupt services and cause noncompensable harm to goodwill; the court granted preliminary injunctive relief to prevent exclusion and maintain existing clearing practices while the dispute was litigated.


Otero Savings & Loan Association v. Board of Governors of the Federal Reserve System, 497 F. Supp. 370 (1980)