Seventh Circuit Upholds FDIC’s Use Of In-House Enforcement Proceedings After “Close And Challenging” Constitutional Analysis

In a closely watched decision with potentially significant implications for federal banking enforcement, the U.S. Court of Appeals for the Seventh Circuit has upheld the Federal Deposit Insurance Corporation’s authority to adjudicate certain enforcement actions through its own administrative process rather than in federal court. In Bonan v. FDIC, No. 24-3296, decided August 12, 2026, the Seventh Circuit rejected a former Illinois community bank chairman’s argument that the FDIC’s administrative enforcement proceeding violated his Seventh Amendment right to a jury trial. The court described the constitutional question as a “close and challenging call,” but concluded that, under the Supreme Court’s current precedent, Congress may authorize the FDIC to adjudicate these claims in-house.

The decision is particularly important in the wake of the Supreme Court’s 2024 decision in SEC v. Jarkesy, which held that the SEC could not impose civil penalties through an administrative proceeding when the underlying statutory claims were legal in nature and implicated the Seventh Amendment. The Seventh Circuit’s decision addresses how Jarkesy applies to the FDIC’s distinctive statutory enforcement authority under Sections 8(e) and 8(i) of the Federal Deposit Insurance Act.

The FDIC’s Enforcement Action Against Bonan

Frank William Bonan II served as chairman of the board of Grand Rivers Community Bank in Illinois and also served on its loan committee. He was simultaneously involved with another bank, People’s National Bank of McLeansboro. The FDIC’s enforcement action arose primarily from Bonan’s involvement in a 2015 loan transaction involving Evergreen Drilling and Evergreen Properties, oil-drilling businesses experiencing financial difficulties.

Bonan directed Grand Rivers to make a $1.25 million loan to 618 Holdings, LLC, an entity formed only after the loan application had been prepared. The borrowers were employees of Bonan and had limited financial resources. The transaction was structured so that a portion of the loan proceeds was placed in escrow to fund Evergreen’s initial lease payments, which in turn provided 618 Holdings with the money needed to make payments on the Grand Rivers loan. FDIC examiners subsequently classified the loan as substandard, and Grand Rivers ultimately charged off approximately $500,000 of the loan. The FDIC also alleged that Bonan was responsible for the erroneous release of the bank’s security interest in an oil-drilling rig, resulting in an additional loss to Grand Rivers.

In May 2021, the FDIC commenced an administrative enforcement action alleging that Bonan had engaged in unsafe or unsound banking practices and breached his fiduciary duties. The FDIC sought both a prohibition order under Section 1818(e) and civil money penalties under Section 1818(i). Following a six-day administrative hearing, the FDIC’s ALJ recommended sanctions. In December 2024, the FDIC Board issued orders prohibiting Bonan from working at any FDIC-insured institution and imposing a $105,000 civil money penalty. Bonan then petitioned the Seventh Circuit for review.

The Seventh Amendment Issue After Jarkesy

Bonan’s principal argument was that the FDIC could not constitutionally adjudicate the enforcement action itself because the Seventh Amendment entitled him to a jury trial. The Seventh Amendment states: “In Suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved, and no fact tried by a jury, shall be otherwise re-examined in any Court of the United States, than according to the rules of the common law.” The Seventh Circuit analyzed this issue under the two-step framework established by the Supreme Court in SEC v. Jarkesy, 603 U.S. 109 (2024). First, a court must determine whether the administrative action implicates the Seventh Amendment. Second, if it does, the court must determine whether the “public rights” exception to Article III permits Congress to assign adjudication of the matter to an administrative agency. If the public-rights exception applies, Congress may assign the matter to an agency without a jury.

The first step was straightforward. The FDIC conceded that the civil money penalty was legal in nature because a civil penalty is a “prototypical common law remedy.” The court likewise treated the prohibition order as legal in nature. Thus, the critical issue was whether the FDIC’s claims involved “public rights” that Congress could assign to an administrative agency.

Atlas Roofing Versus Jarkesy

The Seventh Circuit’s analysis turned on the relationship between two Supreme Court decisions: Atlas Roofing Co. v. Occupational Safety & Health Review Commission, 430 U.S. 442 (1977) and Jarkesy. In Atlas Roofing, the Supreme Court upheld an agency’s authority to impose monetary penalties for violations of federal workplace-safety requirements, reasoning that Congress may create new statutory “public rights” that can be adjudicated by an administrative agency rather than a jury. But Jarkesy subsequently narrowed the circumstances in which Atlas Roofing applies, holding that statutory securities-fraud claims were sufficiently analogous to common-law fraud that they involved private rights. The fact that Congress had placed those claims within a comprehensive federal regulatory scheme did not transform them into public rights.

Importantly, however, Jarkesy did not overrule Atlas Roofing. The Seventh Circuit concluded that Atlas Roofing continues to govern agency enforcement actions involving statutory standards that bring “no common law soil” with them, while Jarkesy applies to “traditional legal claims” embedded in statutes.

“Unsafe or Unsound” Banking Practices Are Regulatory, Not Common-Law, Claims

The Seventh Circuit concluded that the FDIC’s enforcement authority under Sections 1818(e) and 1818(i) involves public rights. A central reason was the statutory prohibition against “unsafe or unsound practices.” The court emphasized that this concept did not originate in the common law. Rather, the term likely emerged from nineteenth-century state banking laws. The court therefore concluded that the “unsafe or unsound practice” standard brings no common-law “soil” with it. The distinction was important under Jarkesy. Because the FDIC’s unsafe-or-unsound-practices authority did not have a common-law analogue at the Founding, the Seventh Circuit concluded that Atlas Roofing, rather than Jarkesy, controlled.

What About Breach of Fiduciary Duty?

The fiduciary-duty aspect of the case presented a much closer question. Bonan argued that fiduciary duties are traditional private rights and therefore cannot be adjudicated by an administrative agency without violating Article III and the Seventh Amendment. The Seventh Circuit acknowledged the force of that argument, noting that enforcing fiduciary duties was historically an equitable function and that breach-of-fiduciary-duty claims therefore do not necessarily resemble the common-law claims that were the focus of Jarkesy.

But the court ultimately concluded that the relevant history did not establish that fiduciary duties applied to bank directors at the founding of the country. According to the court, reported cases involving bank-director liability did not emerge until the nineteenth century, and common-law standards governing bank-director liability developed later. The court therefore held that the FDIC’s enforcement action under Sections 1818(i) and 1818(e) involved public rights under Atlas Roofing. The Seventh Circuit emphasized that its Seventh Amendment holding was a close and challenging call.

A Potentially Important Limitation on Jarkesy

Bonan should not be read as saying that Jarkesy is limited to the SEC. Rather, the decision provides an important illustration of how courts may distinguish between statutory enforcement claims that resemble traditional common-law causes of action and statutory claims that arise from regulatory obligations that have no common-law analogue. The Seventh Circuit’s formulation is particularly significant for financial regulators because banking statutes contain numerous standards, such as “unsafe or unsound practices,” that are creatures of the modern regulatory system rather than traditional common-law causes of action. Under Bonan, the mere fact that an agency seeks a civil penalty does not necessarily mean that Jarkesy requires a jury trial. The court must still determine whether the underlying statutory claim is one of the types of claims that Jarkesy places within the protected category of private rights.

A Significant Development: The Fifth Circuit Had Already Reached a Similar Conclusion

The Seventh Circuit’s decision is particularly noteworthy because it is not the first federal appellate decision to conclude that Section 1818 enforcement actions involve public rights. The Seventh Circuit expressly cited the Fifth Circuit’s 2025 decision in Ortega v. OCC, 155 F.4th 394, 403–09 (5th Cir. 2025), which likewise concluded that enforcement actions under Section 1818 involve public rights, relying on the history of federal bank regulation. Thus, Bonan and Ortega provide important appellate support for the proposition that Jarkesy does not prevent the banking agencies from using their statutory administrative enforcement procedures under Section 1818.

Bonan’s Article II Challenge Also Failed

Bonan also argued that the statutory protections from presidential removal enjoyed by FDIC Board members and administrative law judges violated Article II. The Seventh Circuit did not decide whether those removal restrictions are constitutional. Instead, relying on Collins v. Yellen, 594 U.S. 220 (1921), the court held that Bonan was required to demonstrate that the allegedly unconstitutional removal restrictions caused him compensable harm. The court concluded that Bonan had not done so and that his suggestion that the President might have removed FDIC officials if the statutory restrictions had not existed was merely speculative. The court also rejected Bonan’s contention that an unconstitutional removal restriction constituted structural error requiring automatic reversal.

Due Process Challenges Also Rejected

The Seventh Circuit rejected Bonan’s remaining due process arguments. First, the court held that Bonan failed to establish that the FDIC was biased merely because the agency performed both investigative and adjudicative functions. Under Withrow v. Larkin, 421 U.S. 35 (1977), the combination of those functions within an administrative agency does not, standing alone, establish a due process violation. There is a presumption of honesty and integrity in administrative adjudicators. Second, the court rejected Bonan’s argument concerning his inability to take depositions before the hearing. There is no constitutional right to pretrial discovery in administrative proceedings, and Bonan was able to depose certain unavailable witnesses and cross-examine witnesses who testified, which meant he failed to establish that the absence of broader discovery made the proceeding fundamentally unfair. Finally, the court rejected his challenge to service of the Notice of Charges.

The Court Also Upholds the FDIC’s Substantive Findings

The Seventh Circuit ultimately concluded that substantial evidence supported the FDIC Board’s prohibition order and civil money penalty. With respect to the prohibition order, the court found substantial evidence that Bonan breached his fiduciary duty of care, emphasizing his role in soliciting and influencing a substantial loan despite the borrowers’ limited financial resources and the risks associated with the transaction. The resulting loss also satisfied the statutory effects requirement: Grand Rivers charged off more than $500,000 on the 618 Holdings loan. The court upheld the $105,000 civil money penalty as well.

What Bonan Means for FDIC Enforcement

Bonan is an important decision for the FDIC and for bank directors and officers who may become the subjects of administrative enforcement actions. Most immediately, the decision confirms that, at least in the Seventh Circuit, the FDIC may continue to use its administrative enforcement machinery under Sections 1818(e) and 1818(i) without providing the respondent a jury trial. More broadly, the decision demonstrates that Jarkesy has not eliminated the ability of federal financial regulators to adjudicate enforcement actions internally. The constitutional analysis instead turns on the nature and historical pedigree of the statutory claim.

The decision also underscores the continuing importance of the precise language Congress has used in banking statutes. “Unsafe or unsound practices” is sufficiently regulatory in character, in the Seventh Circuit’s view, to qualify for the Atlas Roofing treatment. At the same time, the court’s extensive discussion of fiduciary duties leaves an important constitutional issue unresolved. The Seventh Circuit effectively acknowledged that there are substantial arguments concerning the historical treatment of equitable claims and Article III, but it concluded that Jarkesy does not require a different result here. That issue may not remain unresolved indefinitely. If another circuit reaches a different conclusion—or if a future litigant presents the Supreme Court with the issue—the Court may ultimately be called upon to decide how far Jarkesy extends to statutory claims based on traditional equitable doctrines such as fiduciary duty. For now, however, Bonan represents a significant victory for the FDIC and provides federal banking regulators with substantial support for continuing to adjudicate Section 1818 enforcement actions in-house.

Would the Result Be the Same if the Regulator Were the OCC, Federal Reserve or CFPB?

The implications of Bonan extend beyond the FDIC. Although the case directly concerned the FDIC’s authority under Sections 8(e) and 8(i) of the Federal Deposit Insurance Act, the Seventh Circuit’s reasoning is based principally on the nature of the statutory claims, not on the identity of the agency bringing the enforcement action. That distinction could make the decision important for the OCC and Federal Reserve as well as, although less directly, the CFPB.

OCC: The Answer Should Be Yes

The OCC’s enforcement authority under 12 U.S.C. § 1818 is materially parallel to the FDIC’s authority. Section 1818 authorizes the OCC to issue removal and prohibition orders and impose civil money penalties for violations involving unsafe or unsound practices and other statutory requirements. Indeed, the Fifth Circuit reached essentially this conclusion in Ortega v. OCC, 155 F.4th 394 (5th Cir. 2025). As stated above, the Seventh Circuit expressly relied on Ortega in Bonan, citing it as additional authority for the conclusion that Section 1818 enforcement actions involve public rights. The constitutional analysis therefore should apply equally to the OCC. An OCC enforcement action seeking a civil money penalty or prohibition order based on unsafe or unsound practices should have a strong argument under Bonan that the matter involves a “public right” that Congress may constitutionally assign to administrative adjudication. In short, Bonan, together with Ortega, provides the OCC with particularly strong support for its continued use of administrative enforcement proceedings under Section 1818.

Federal Reserve: Likewise a Strong Position

The Federal Reserve Board also has extensive enforcement authority under Section 1818, including with respect to state member banks, bank holding companies, and certain institution-affiliated parties. For essentially the same reasons applicable to the OCC, Bonan should provide substantial support for the constitutionality of the Federal Reserve’s use of administrative proceedings to adjudicate safety-and-soundness violations and impose sanctions authorized by Section 1818.

CFPB: A More Complicated Application

The implications for the CFPB are less straightforward. Unlike the FDIC, OCC, and Federal Reserve, the CFPB does not primarily rely upon Section 1818. Its enforcement authority derives principally from the Consumer Financial Protection Act and the numerous federal consumer-financial statutes that Congress has entrusted to the Bureau. The CFPB nevertheless has a substantial argument under Bonan that many of its enforcement claims involve public rights. The Bureau frequently enforces statutory and regulatory standards, most notably the prohibition against unfair, deceptive, or abusive acts or practices (“UDAAP”), that did not exist at common law and that are part of comprehensive federal regulatory schemes.

In that respect, UDAAP claims may present a substantial argument for administrative adjudication. The Supreme Court in Jarkesy emphasized the close resemblance between the SEC’s fraud claims and traditional common-law fraud. By contrast, a UDAAP claim does not necessarily correspond to any particular common-law cause of action unless it is based solely on the deception prong of UDAAP. CFPB enforcement actions can involve allegations of deception, misrepresentation, or other conduct that may be readily analogized to traditional common-law claims, and the closer the statutory claim comes to an established common-law cause of action, the stronger the respondent’s Jarkesy argument becomes. Thus, Bonan does not provide the CFPB with a categorical answer. Rather, it reinforces the importance of examining the specific statutory cause of action underlying each enforcement claim.