Monday, January 30, 2006
C.A. Revives Suit Against Wells Fargo Over ATM Charges
By KENNETH OFGANG, Staff Writer
Federal law does not preempt a claim that a national bank violated state law by imposing overdraft fees on consumers who used their ATM cards for purchases that exceeded their available funds, the Fourth District Court of Appeal has ruled.
In an opinion by Justice Alex C. McDonald, filed Dec. 29 and certified Thursday for publication, Div. One reinstated a putative class action against Wells Fargo Bank by a customer who claimed the bank committed a deceptive business practice when it failed to properly notify him that he would be subject to the fees.
The appellate panel concluded that San Diego Superior Court Judge Ronald Prager erred in summarily rejecting plaintiff Sean M. Smith claims on preemption grounds and on the basis of the judge’s conclusion that the bank adequately disclosed its practices.
In opposition to the bank’s motions, Smith presented evidence that the consumer disclosure statement he received when opening his Wells Fargo account in 1997 required him to abide by all changes in the bank’s fee schedule and required the bank “to notify the first signer of the account in advance of any such fee change.”
At the time, it was Wells Fargo’s practice to decline any ATM card transaction if there were insufficient funds in the account to cover it. This was in contrast with the policy regarding paper checks, where the bank retained the option of honoring the check under an existing overdraft protection agreement with the customer, honoring the check without an existing agreement and charging the overdraft fee, or returning the check for insufficient funds and charging an NSF fee.
Smith presented evidence that the check policy was extended to point-of-sale transactions using ATM cards in 2002 after the bank concluded it could earn between $120 million and $145 million a year from overdraft fees of about $30 on ATM transactions.
The bank responded that it notified Smith and other customers of the change by enclosing a notice with monthly account statements in March 2002 and implemented the new procedures in May of that year, seven months before Smith filed suit.
Smith alleged that Wells Fargo violated the unfair competition law, the Consumer Legal Remedies Act, and the false and misleading advertising law by implementing the change unilaterally and with inadequate notice, and without allowing cardholders the option of canceling “this overdraft protection though the amount of the per transaction fee was never requested, agreed to, or disclosed to the checking account holder[s] when they were provided” with the card.
McDonald, writing for the Court of Appeal, said the trial judge was wrong in interpreting certain regulations of the Office of the Comptroller of the Currency as preempting state law with respect to Smith’s claims.
While OCC regulations establish disclosure requirements for changes in fees charged by national banks, the jurist explained, nothing in the regulations or in the legislation authorizing them expresses an intent to bar enforcement of state laws where the state’s requirements do not conflict with those of the OCC.
In this case, McDonald noted, the plaintiff alleges that the bank violated OCC regulations and that those violations also constitute unlawful practices under state statutes, so no conflict exists.
The justice went on to say that the adequacy of the disclosures is a disputed factual question that should not have been resolved by summary adjudication.
The case is Smith v. Wells Fargo Bank, N.A., 06 S.O.S. 425.
Copyright 2006, Metropolitan News Company